Getting a post-bankruptcy auto loan without an exorbitant interest rate can be tricky, but if you've been repaying your credit accounts on time and keeping your overall utilization ratio low, experts say it's possible to rebuild your credit score to a respectable level within two or three years.
"Within a couple of years you could have a score maybe over 650," says personal finance expert Emily Peters of Credit.com. "A couple of years of due diligence will work."
Auto loans are a logical next step toward rebuilding your credit because the loan is secured by the car, and lately, some auto lenders are more willing to give loans to people with less than perfect scores, she says.
For example, GMAC Financial Services announced in late December that it will extend credit to buyers with credit scores as low as 621. The previous floor was 700. And it's not uncommon to see signs on car lots that say, "Bad credit? No problem!" These are desperate times for car dealers, after all.
But consumers still need to be just as wary about auto loan terms as they are with credit card terms because although you may be offered a loan, it doesn't necessarily mean you'll be getting a great deal. Be sure to shop around.
In January, the average interest rate for a 36-month new car loan for buyers with credit scores between 500 and 589 was 16.52 percent, according to MyFico. That would mean a monthly payment as high as $708 on a $20,000 auto loan, according to Bankrate's auto loan calculator.
"You're going to get a lot of offers in the mail, but take a look at what's out there and make some smart decisions," Peters says. "You don't want to get into something like a 32 percent car loan just to rebuild your credit."