Car FinanceCars

How Hard Is It To Get Car Finance When Bankrupt?

Car Dealership

No matter what type of bankruptcy you fall into, it can feel like the end of the world. It is a term and process that can feel total, and final, for a considerable time period.

When it comes time to find an appropriate car finance deal, the effect bankruptcy can have on your credit score, and subsequently, the ability to actually drive away in a car can be very significant. Here, we’re going to be looking at how a bankruptcy filing can affect your ability to finance a vehicle purchase and answering what it’s like to find a variety of vehicles during, and after, the bankruptcy process. 

It’s no secret that your credit history is going to be affected for a long time and your overall credit profile won’t be back to ‘normal’ for a number of years, either 6, or 15 if you have been found to be reckless and in breach of your Bankruptcy Order rules.

How Bankruptcy Affects Car Finance Applications

Bankruptcy is a final option for people who have accrued debts and are simply unable to pay them back. While the pressure to pay that money off is lessened, the level of restrictions and limitations put on you make it a process that should be avoided if at all possible. For instance, your credit history and credit rating will be significantly affected for several years. In addition, if you’re a business owner, your company could be closed down and if you rent, your landlord could end the tenancy. However, just because it must be avoided, that doesn’t mean it isn’t a semi-regular occurrence in England and the rest of the UK. 

Women cutting up credit card over laptop

So, when bankruptcy and bad credit strike, it can affect your finance applications the next time you want to purchase a vehicle – but how? Well, essentially, that ill-fated phrase is a big red flag to auto lenders and people who use credit checks, credit reports, and minimum credit scores to determine if someone should be allowed to purchase a vehicle model via a loan. Having a black mark like that against your name says to them that your finances aren’t in order and, because of your personal circumstances/outstanding debts, you may struggle to pay bills on time. Not being able to make repayments on time will hinder your poor credit score and prevent you from getting auto loans.

Finding A Car During Or After Being Declared Bankrupt

There are two phases to the bankruptcy process and two different ‘status’ that you will be under – the first is while you’re undergoing it, and the second is after. While you’re undergoing bankruptcy, it’s virtually impossible to get any kind of car finance. While the receiver is handling your case, your ability to get a finance deal is stopped because lenders understand the implications of their customers being part of a bankruptcy process and how that affects credit ratings, and the ability to use their income to repay unsecured debt. 

Man driving away in new car

After you have gone through the process, you then begin the 6-year period where the bankruptcy mark stays on your credit report. While this doesn’t stop you from achieving car finance, it does mean you’ll more than likely be subject to high-interest rates and may be subject to big deposits, as auto lenders will want to try and secure as much of the repayment as possible, worried about the potential of missed payments because you have a less than impeccable payment history. Essentially, you’re a very high-risk application so the upfront costs, and monthly payments, will be higher because you haven’t got sufficient evidence of being able to make regular payments.

How Long Should I Wait To Apply For Car Finance?

Once you have gone through the process and been declared ‘a discharged bankrupt’ you can start applying for car finance. However, it is usually best to wait 12 months as it may appear that you’re too eager. Use that 12-month space of time to build up your credit score in small, incremental ways so that, when you’re ready to apply, you have proof that you can manage loan payments and have made good on other credit agreements.

Related posts
Credit RatingPersonal Finance

Credit File VS Credit Score – What's The Difference?

Car FinanceCars

Best Ways To Finance A Car In 2021

Loans

Should You Take Out A Loan During Covid-19?

DebtMortgages

Can A CCJ Stop You Getting A Mortgage?