How to Get a Car Loan After Bankruptcy


When you file for bankruptcy you free yourself from the chains of debt bondage. It’s one of the best ways to press the reset button on your finances and receive a clean slate.

couple buying a car

But now it’s impacting your ability to secure loans. And you may be feeling the pressure because you need to get a car loan and can’t get approved.

Most traditional lenders may have said no. But there are lenders that specialize in helping you get a car loan after bankruptcy.

Read on to learn how soon you can apply and how to increase your approval odds.

How long after bankruptcy can I buy a car?

The time frame between filing and the clearance to secure a car loan after bankruptcy will depend on the type of filing.

Chapter 7 (Liquidation)

If your debts were discharged or liquidated under chapter 7 bankruptcy, there isn’t a specific waiting period. But, you may have to give your credit scores at least a year to start recovering from a Chapter 7 bankruptcy filing. It’s also important to note that a chapter 7 bankruptcy stays on your credit report for up to ten years.

Chapter 13 (Reorganization)

If you filed for Chapter 13 Bankruptcy, which is a reorganization of your debts, getting a car loan is a bit trickier. Payment is remitted to creditors via a payment plan that spans three months to five years.

So, you may not be able to secure a car loan until you’ve satisfied your repayment obligations. But under certain circumstances, you may get permission before the repayment period ends. To learn more, contact your attorney. Chapter 13 bankruptcies stay on your credit for up to seven years.

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Review Your Credit Reports

Once you’ve received clearance to take on new debt (if under Chapter 13) or your Chapter 7 proceedings are over, the next step is to review your credit report. The Consumer Financial Protection Bureau (CFPB) recommends checking your credit reports at least once a year.

You should also check them before a major purchase like a car. Your credit history and credit score are major factors in the application review process.

How to Get Your Credit Reports for Free

Did you know 1 in 5 consumers have an error on at least one of their credit reports, according to the results of a study conducted by the Federal Trade Commission (FTC)?

For this reason, you want to review your credit report to ensure the accuracy of the contents. The information contained in your credit reports is what’s used to generate your credit scores, and you wouldn’t want errors dragging your scores even further into the trenches.

You can get a free copy of your credit reports from each of the three major credit bureaus at (More detailed guidance is provided here if you need it).

Check Your Credit Scores

If you’ve recently filed bankruptcy, chances are your credit scores are on the low side. But this doesn’t mean your car loan application won’t be approved. And it’s good to know where you stand before applying so you won’t be caught off-guard when the prospective lender pulls your credit history and score.

You’ll have to pay a nominal fee to access your FICO score on But you can also view your credit score by signing up for one of the credit monitoring services. You may also be able to view your credit score on your bank’s online dashboard or credit card statement.

Dispute Errors

Once you’ve retrieved a copy of your credit report, review the contents in their entirety. Pay special attention to information reported on past car loans. If you spot errors that are causing you bad credit, file disputes to have them rectified. (Here’s a handy guide on how to get the process started).

According to the FTC, any information that can’t be proven as timely and/or accurate must legally be removed from your credit report.

You can also call the creditor, explain your situation, and a request a goodwill adjustment. Or save yourself the time and headaches by leaving the work to reputable credit repair professionals.

Research Lenders

It’s never a good idea to go with the first lender you find without shopping around. Why? For starters, they may not be a legit lender.

And if they are, how do you know they have the most competitive auto loan offer for your financial situation? Instead, shop around to see what’s out there. You’ll find that some lenders offer bad credit auto loans to consumers.

Tips for Shopping Around

  • Keep the car loan shopping period to a minimum to reduce the impact on your credit scores. FICO scores overlook auto loan inquiries made 45 days before scoring. “So, if you find a loan [within this time frame], the inquiries won’t affect your credit scores while you’re rate shopping,” notes myFICO.
  • Some online lenders offer prequalification tools to see what you may qualify for. There is no impact on your credit scores.
  • Visit the dealership after you’ve been prequalified elsewhere and see if they can beat the current offers you have. This may also give you more negotiating power if their numbers are low and they really need your business.
  • Consider reaching out to your financial institution for auto financing. If you’re a member of a small community bank or credit union, you may have luck as they sometimes approve bad credit car loans based on the strength of the account holder’s history with their institution.
  • Avoid “buy here, pay here” dealerships if possible. They appeal to consumers with credit challenges, like bankruptcy, because they don’t conduct credit checks. But, this usually means high interest rates since the lender is assuming more risk. In fact, interest rates are usually well into the double-digits, and the lender will “make as much, or more, profit on the financing as they do on the car itself,” according to Autotrader.

Save Up for a Down Payment

Most lenders will require you to make a down payment to approve a car loan after bankruptcy. This is because you’re still perceived as risky by the lender because of the bankruptcy filing. Funds from the down payment help minimize the risk the lender will assume. Plus, it will lower your monthly payment and earn equity in the vehicle faster.

Apply for a Car Loan

Upon deciding on a car loan, access the application online or in-person and complete it in its entirety. You don’t want the application to be rejected due to a simple error or omission that could be prevented by scanning for accuracy.

Remember, you want to paint the best picture possible for the lender to show them you’re on the way to cleaning up your finances and aren’t the person your credit history reflects. You just hit a rough patch and need them to give you a second chance to prove yourself.

Most lenders are able to issue a prequalification rather quickly if you provide the right documentation. This includes:

  • Copies of your last two pay stubs
  • Your employer’s contact information
  • Bank statements (to prove you have the funds on hand for a down payment)
  • Copies of your last two tax returns and financial statements (if self-employed)
  • Proof of residence
  • Information about the vehicle you’re looking to purchase
  • Credit references

But if you hit a snag, reach out to the lender to explain your situation and hope for the best. They may be willing to give your application a second look and issue the stamp of approval.

Make Timely Payments

Payment history accounts for 35 percent of your FICO score, so you can’t afford to fall behind on monthly payments if you want to avoid doing further damage to your credit history.

But, if life happens, and you get in a financial bind, reach out to the lender sooner than later to make payment arrangements. You could also inquire about a financial hardship payment plan that will protect your credit scores.

Consider Refinancing Your Car Loan

Filing for bankruptcy doesn’t mean you have to settle for an astronomical interest rate for the duration of the auto loan. By managing the loan and staying current on other debt obligations, your credit score will start to climb. At this point, it may be wise to look into refinancing the auto loan for a lower interest rate.

Building a Positive Credit History

Consider taking some time to rebuild your credit before applying for a car loan after bankruptcy. If you are unable to get an unsecured credit card because of your credit scores, you can start with a secured credit card that requires a cash security deposit.

Another option is taking out a credit builder loan from a company like Self. Building good credit will help you qualify for a car loan with much better interest rates.

Bottom Line

It’s possible to get a new car loan after bankruptcy. But you may have to jump through a few hoops to buy a car with decent loan terms that don’t break the bank.

And if you aren’t successful when applying the first time around, don’t throw in the towel. Return to the drawing board to see what other auto loan lenders may have to offer you or take steps to improve your credit rating.

Allison Martin
Meet the author

Allison Martin is a syndicated financial writer, author, and Certified Financial Education Instructor (CFEI). She has written about personal finance for almost ten years and holds a master's degree in Accounting from the University of South Florida.