How to Finance a Car Loan After Bankruptcy

How to Finance a Car Loan After Bankruptcy

Posted on February 7, 2023

Canadians that are looking to finance a car loan after bankruptcy should follow these tips. These tips have been tested in the real world and if you stick with our car loans team to the end, you will be driving home in a new vehicle in no time.

What Most Canadian's Don't Know About Bankruptcy

When a person goes bankrupt, an insolvency trustee will submit official documentation to superintendent of bankruptcy; once the declaration of insolvency has been received, all efforts to collect on your debts are stopped.

During the bankruptcy, you cannot take on any new debts without written permission from your insolvency trustee; legally, you are not allowed to take any debts because you are no longer responsible for yourself.

After nine months up to 2 years, depending on how your bankruptcy is structured, you will receive an official discharge; only when you are discharged from the actual bankruptcy can you begin.

Understanding the Cause of Your Bankruptcy

One of the things that will come up when you are trying to secure car financing is the cause of your bankruptcy. Lenders want to better understand your circumstances and being able to explain why you bankrupt demonstrates your awareness of the root cause.

If you lost your job due to the pandemic or perhaps there was a marital breakdown and you had to file for divorce.

Whatever the circumstances, being honest with the lenders will help increase your chances of getting the car loan approved.

How Bankruptcy Impacts Your Credit Score

Even when you have completed the bankruptcy, it will stay on your credit report for the next seven years.

Your credit score is going to be very low, and most prospective lenders will decline your car loan application.

The first step to rebuilding your credit is opening up new accounts and establishing a track record of paying your debts on time.

There is a bankruptcy left on your official credit report, and that will remain there for at least six years, so most creditors will not issue a new credit card.

When you sign up for a secured credit card, you will deposit money into an account; the funds that you deposit are used as your credit limit.

This is not the same thing as a prepaid credit card; with the secured credit card, it will report your activity to TransUnion and Equifax on a monthly basis.

Of course, you need to make your payments on time, but this will help boost your credit score in as little as 30-days.

Assessing Your Income

Something you will need to look at is your income. While working on your credit, you will also need to look at your income to see how much money is left in your budget to put towards a car loan.

One of the things you learned through the bankruptcy process was how to prepare and follow a budget. You should already know how much money is left at the end of the month but if you don’t start working out the sum.

Calculating Your New Car Buying Budget

You will need to determine how much cash you can afford to put towards your new vehicle. While you may be tempted to max out your car-buying budget, the goal is to buy something that you can afford without getting yourself into too much debt.

The maximum loan lenders will approve is forty percent of your gross income, this factors in all of your current obligations plus the proposed car loan in Halton.

Since the bankruptcy cancelled all of your current debts, you should be able to afford a substantial car loan.

Securing Competitive Car Loans After Bankruptcy

To get the most competitive car loan after bankruptcy, you'll want to go through a dealership. The lenders that specialize in financing high-risk borrowers can only be accessed through your local car dealership.

You must look for dealerships that have been in business for a considerable number of years and specialize in offering second chance financing.

Once you have identified the dealerships in your community that provide this type of financing, contact them and begin reviewing your options.

By following these suggestions and buying a new car, you are beginning the next chapter in your life, which could be one of the best, but you will never know until you contact the dealership now.

We will use all our skill and experience to deliver the lowest possible Halton auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.