After you go through Chapter 7 bankruptcy, it can remain on your credit report for up to 10 years from the filing date. During this period, you might need to buy a car.  

And while it is more difficult, you can get a car loan after bankruptcy. 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. 

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

When trying to finance your car with an auto loan after bankruptcy, you may face a tougher time finding a lender — some will be reluctant to work with you. Also, once you find a lender willing to let you borrow money, you probably won’t qualify for the best auto loan rate.  

1. Buy-here, pay-here dealerships 

During your search, you may encounter buy-here, pay-here dealerships that don’t require credit checks. Although these dealerships will work with you if you went through bankruptcy, you can end up paying more than the car is worth. Before using this option, do your research and inquire about hidden fees. 

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, another option would be getting someone with good to excellent credit to co-sign an auto loan for you. Before going this route, explain to the person their rights as a co-signer. In the unfortunate event that you default on your loan, the co-signer will be responsible for the payments, and it could negatively affect their credit. 

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. 

Because of the pandemic, some car manufacturers were forced to close their factories for months and saw inventory and sales decline. If you’re in need of a vehicle, you may want to shop used to circumvent the shortage of new cars. But do your due diligence and don’t 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. 

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