Even though you’ve done the hard work of getting your finances back in order by filing for bankruptcy, your credit score has seen better days. Although a bankruptcy remains on your credit reports for years, it doesn’t mean you can’t get a bad credit car loan.
Completing a Bankruptcy
Once you’ve successfully completed a bankruptcy, whether it’s a Chapter 7 or a Chapter 13, it’s discharged. At this point, you usually get mailed discharge papers proving you’re good to go. If your bankruptcy is dismissed, meaning it was never completed, you will have a much harder time getting approved by a bad credit lender, but it’s not always impossible.
In either case, if your bankruptcy has been discharged or dismissed, you’re probably going to need to work with the right lender to get an auto loan. You can usually get a car loan rather quickly after a bankruptcy discharge, and you can prove you’re no longer in an active bankruptcy.
There are lenders that work with post-bankruptcy borrowers, called subprime lenders. These lenders work through a dealership’s special finance department and use your income, overall financial history, stability, and more to make loan decisions.
They do take a look at your credit reports, but this also means a subprime auto loan is reported to the major credit bureaus. With a subprime car loan, keeping up on the payments can help to repair your credit after a bankruptcy filing.
Applying for a Bad Credit Car Loan
If you’d like to work with a subprime lender, you need to find a dealership with a special finance department. Traditional auto lenders are typically hesitant to work with a borrower that has a bankruptcy on their credit reports.
Once you find a dealer that works with subprime lenders, you submit a credit application and they send it to one or more subprime lenders. A lender who can work with your unique credit situation sends the dealership an approval with the credit tier and maximum monthly payment you qualify for, and you choose a vehicle with the dealer.
Your subprime lender is likely to require some items from you to verify your information. While all lenders vary in what they require for a bad credit car loan, most follow similar standards.
Common stipulations include:
- Bankruptcy discharge papers – If you’ve recently been discharged, have your discharge papers handy. It can take some time for a discharge to appear on your credit reports. Most lenders won’t work with you if you can’t prove you’ve been discharged.
- Income – Most subprime lenders require a minimum monthly income of around $1,500 to $2,000 before taxes, from a single income source. This is proven with a computer-generated check stub that also lists your year-to-date income.
- Proof of residency – Bad credit lenders require proof of your residence with a recent utility bill or bank statement in your name with the correct address. They like to see that your living situation is stable, so, generally speaking, the longer you’ve lived in the same area, the better your chances of approval.
- Working phone – Your lender needs to be able to contact you, so a working phone is a must. This can be proven with a recent cell/landline phone bill (no prepaid phones) in your name.
- Driver’s license – While having a license isn’t necessary to finance a vehicle, you’re going to need to prove your identity. You can prove this with a valid license, meaning it’s not suspended, revoked, or expired. You also need a license to test drive a car, insure it, register it, and drive it off the lot,
- Down payment – Subprime lenders require proof you can invest in the loan, and this means providing a down payment of at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less).
- Personal references – If you’re approved for an auto loan, bad credit lenders usually require a list of around five to eight personal references with complete contact information (phone number, address, email, etc.). These references can be anyone, as long as they don’t share your current home address.
Once you’ve gathered your items, you’ve done the majority of the hard work. Now you’re going to need to find a subprime lender that can work with a post-bankruptcy borrower.
Finding a Bad Credit Lender
It can be hard to tell which dealerships have special finance departments, but we want to help with that.
At The Car Connection, we’re teamed up with dealers nationwide that work with subprime lenders and we connect borrowers, including post-bankruptcy borrowers, for free. To get started, simply fill out our auto loan request form to get matched to a dealership near you.