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Car Loan After Bankruptcy
A car loan after bankruptcy can be one of two things. It can be a great experience as part of a plan to help you rebuild your credit and get you back to a better financial standing, or it can be a giant problem and a way into more high interest debt. Even if you’re in a situation where you’re desperate for a vehicle, you can still try and make your experience become the first one.
Bankruptcy is supposed to be a new start. Sadly for many people after things are finalized they are left not knowing what to do next, and still in a nasty financial situation.
Before you start looking to get a car loan after bankruptcy I recommend building up your credit a bit if possible. There are two types of credit you’re going to want to have, installment and revolving. Installment payments are for things like loans, where as revolving is for things like credit cards.
Obviously in your situation getting a traditional unsecured credit card can be difficult. You do have the option, however, to get a secured credit card. You can usually find these at your current bank or credit union. You deposit a few hundred dollars into a savings account which will be used as security to secure your credit limit on your new card. After approximately a year you will be able to apply for an unsecured card. Make sure that the company you work with reports to the three major credit bureaus about your on time monthly payments so that you build positive credit history.
It is recommended that you wait six months to get a car loan after bankruptcy, not just to build up your credit a bit, but because most lenders won’t work with you before then, and the ones who will, will offer you an even higher interest rate than you’d be offered if you wait a while.
Even after six months to a year you will still be offered very high rates. This is because you are seen as a risky customer. You can try to offset this risk by offering your home, another vehicle, or high priced collectibles as collateral and you will have an easier time both finding a lender and getting a better interest rate. You can also make things easier by finding a cosigner if collateral isn’t an option for you, but you should be aware that if you fail to make your payments this person will be held responsible.
These high rates are generally considered worth the cost, not just because you need a vehicle, but because by paying these rates now and making your payments on time every month you build up a positive credit history and will be offered better rates in the future and generally have an easier time of things financially.
By being responsible and in control of your finances a car loan after bankruptcy can be part of a plan to get yourself back on track.
Requirements for unsecured car loans
Unsecured loans are those loans that are given without any collateral. This specifies that such loans are not given against borrower property. In case of default the lender can take back his dues selling the collateral and taking the possession. A loan that is without collateral and used to finance the car purchase is considered as unsecured car loan.
Such type of loans becomes a risky term for the lender due to the lack of collateral. Generally lending institutions try to scrutinize the borrowers credit history and income sources to measure the chances of his repaying the loan. In case you have bad credit record, it will be difficult for you to get an unsecured car loan. Such loans have a high rate of interest in order to give the compensation for the risk to the lender.
There are many advantages of unsecured car loan. As there is no requirement for any collateral, such loans are good for those people who can put their house at risk to purchase a new car. Along with this, such loans are generally processed very fast that makes them good for those people who have the immediate requirement of cash.
Before applying for an unsecured car loan there are some important factors that need to be considered.
It is necessary that you obtain your credit report copy. Whether you get the approval of lending institution or not, it will be determined with your credit record. So its good to apply for a credit report and see that there are no mistakes related with it.
Do a thorough research of your options. Different terms are offered by different lenders for such loans. If you are willing to take these type of car loans, do the complete research and find the rates and terms of the different lenders in order to get the best deal.
Low debt-to-income ratio must be achieved. This ratio is generally the percentage of your those earnings that is used for used debts repaying. Lenders generally prefer to lend to those people who utilize approximately 30% of their earnings towards paying off such existing loans. Thus some of the debts can be settled by you to achieve this ratio.