Finding a new car loan while in bankruptcy

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Dear Dr. Don,
Where can I get a car loan for a new vehicle while in bankruptcy? My trustee has advised me to look for a vehicle and I have done that. But the dealers won’t work with lenders in my case and they all want a cashier’s check or cash. So do you have a name of a lender that would be willing to finance me?

— Helen Hindrance

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Dear Helen,
As you may know, an individual in Chapter 13 bankruptcy is required to successfully complete a repayment plan over a three- to five-year period before the court discharges any remaining eligible debts.

The bankruptcy trustee should recognize that you need a car and that you need a loan to finance the car purchase. Incurring debt with permission is possible in a Chapter 13 bankruptcy. You will need to find a willing lender and get the trustee’s approval of the purchase and loan.

I hesitate to recommend a particular lender to anyone in bankruptcy. You want to buy new? That’s both good and bad. It’s good in that you’re unlikely to face extensive maintenance expenses that you can’t afford. The bad involves the instant depreciation or reduction in value of the car when you drive it off the lot. Even so, a lender is likely to be more comfortable with a new car loan than a used car loan.

Avoid so-called “buy here, pay here” places. If you are eligible to be a member of a credit union, look into whether one will provide you with a car loan. Another possibility: See if you can take a loan against your 401(k) plan at work.

One thing that caused a problem here could have been avoided. You went car shopping first and got frustrated when you couldn’t get a loan. I’d always suggest that a consumer get the loan first. Call the new car dealerships in your area and ask if their finance department works with subprime credit. Explain your situation.

Focus any loan applications within a short period of time so that your credit score doesn’t take multiple hits. When it’s clear that you’re comparison shopping, typically over a period of a week or two, multiple credit inquiries only count as one on your credit score.

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