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Can I get an auto loan after bankruptcy?

Yes! In fact, a car loan is probably the easiest loan you can get after bankruptcy, because it's a secure loan (the car itself is the collateral). The bad news is, it's very easy to get ripped off on an auto loan, especially if you have bad credit. Here are some Do's and Dont's when buying a car after bankruptcy:

Do check your credit report

Why? Some of the loans that were discharged in your bankruptcy can be showing incorrectly, which makes it look like you are currently in collections. You can get a free annual credit report at annualcreditreport.com. Unless you want to get your credit score, you don't need to pay for your credit report.

Do NOT shop for a car before you shop for an auto loan

Consider the car and the auto loan to be separate purchases. Car salesmen will pressure you enough on the purchase of the vehicle, you don't need them rushing you to make a decision on bad financing.

Do your homework

Check around bankruptcy forums to get ideas of places to look for a loan. One often overlooked source of auto loans: a credit union. They often have different underwriting criteria than regular banks.

Do get the smallest loan for the smallest amount possible

The point of bankruptcy is to get a fresh start. In an ideal world, you could pay cash for your next vehicle. If you need to get a loan, get the bare minimum.

Don't focus on just the payment

There are many sharks in the auto industry, and you are in a vulnerable position. It's not a good deal unless its a good vehicle at a good price with a good payment at a good interest rate.

Of all the tips above, the most important one is to get your financing approved before you hit the dealerships. Here's car dealership auto financing's dirty secret: they make a killing off loan fees! Here's how it typically works. The financing manager will pull your credit report and determine what's the best rate you could get. Let's say 10%. The finance manager will then artificially pick a rate above this, maybe 15%. Then your loan gets shopped around at the higher rate. How do they choose which bank gets to do your loan? Whichever bank pays them the most in fees to get you the loan (at 15%!). The bigger the margin between the interest rate you COULD get and the one you are offered, the more the dealership makes. Buyer Beware!

With a little work, you should be able to get an auto loan for no more than a couple percentage points higher than someone with perfect credit.



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