Once filed, Chapter 7 bankruptcy can remain on your credit report for up to 10 years. And it makes new credit approval challenging.

Buying a car during that time is still possible. But be prepared because to compensate for the increased risk, a lender may charge you a higher interest rate or require a larger down payment.

Should I buy a car after bankruptcy?

The answer to this question depends on your financial circumstances and transportation needs.

  • Affordability: Any car you purchase should be well within your budget. Ensure that it is by calculating the cost of ownership, not just the sticker price.
  • Current transportation: If you already have reliable transportation, it may be best to hold off on buying a car. Your interest rate will likely be less than ideal with bankruptcy still on your credit report.
  • Using cash: Avoiding an auto loan before bankruptcy is off your record may be the best option. By using cash, you can skip the loan entirely.

4 ways to finance a car with an auto loan after bankruptcy

Bankruptcy doesn’t have to stop you from securing an auto loan. However, keep in mind your lender options may be limited, and you’ll likely get hit with a high interest rate. The best auto loan rates are reserved for borrowers with good to excellent credit.

1. Bad credit lenders

Thanks to flexible lending requirements, qualifying for an auto loan with bad credit lenders may be possible for borrowers who have filed for bankruptcy. These lenders, including Capital One and AutoPay, may approve borrowers with credit scores under 670. But pay close attention to the interest rates and terms being offered and compare rates from multiple lenders to find the best option.

2. Credit unions

If you’re a member of a credit union, you can try applying for an auto loan there. Since credit unions are not-for-profit, member-owned organizations, you may have better luck securing financing there. Plus, you might be able to secure a lower interest rate.

3. Co-signer

If those options don’t work, consider getting someone with good to excellent credit to co-sign an auto loan for you. Benefits of a co-signer include increased odds of approval and a more favorable rate and term. But before going this route, explain to the person their rights and responsibilities as a co-signer. If you default on your loan, the co-signer will be responsible for the payments, which could negatively affect their credit.

4. Buy-here, pay-here dealerships

During your search, you may encounter buy-here, pay-here dealerships that don’t require credit checks. As appealing as this option may be, it should be your last resort. With this type of financing, not only can you pay more than the car is worth, but your credit may not improve if your loan program does not report on-time payments to the credit bureaus.

Bankrate tip

High interest can drive up the cost of your auto loan. With consistent, regular payments, you can improve your credit score and qualify for auto loan refinancing, which replaces your current auto loan with a new one at a lower rate.

When you should buy depends on your finances

Although the right time to buy your car varies depending on your financial circumstances, the best time to buy a car is when you can score the best deal and interest rate. Waiting until your credit score improves to purchase a car could reduce the interest rate a lender offers you. But if you can’t wait and need transportation now, search for the best deal.

If you can’t wait for your credit score to improve, buying used is more affordable than buying new. According to Kelley Blue Book, the average cost of a new vehicle is $48,763, while the average cost of a used vehicle is $26,068. It is best to do your due diligence and not purchase a vehicle you can’t afford.

The bottom line

While you can purchase a car after bankruptcy, you should expect to pay a higher interest rate if you take out a loan. Although waiting for your credit score to improve can lower your rate, it’s not always possible. Research all of your lending options before you take out a loan. Take advantage of available dealer incentives and try to avoid dealerships that charge hidden fees.