The number of bankruptcy filings has been falling consistently over the last 5 years as the U.S. economy has begun to recover from the Great Recession but there were still almost 900,000 non-business filings in 2015. Most of those filings were not because of reckless spending but, rather, due to financial hardships and unexpected circumstances. Filing for bankruptcy can be stressful and, to some, quite embarrassing or disgracing. It’s never something someone expects or wants to go through but it does happen and it can either be extremely beneficial to your future or not, depending on the choices you make following the bankruptcy.
Beyond the obvious need to identify the reason why you got to the place you were that required you to file and the steps you should take to avoid that from happening again, you will need to readjust your decisions to meet your current situation. Following a Chapter 7 bankruptcy, for instance, you may have given up all or most of your assets, such as any vehicles you may have owned or been still paying on. If you didn’t sign a reaffirmation agreement for your car loan then the vehicle would be returned to the lien holder and the debt would be taken off of your record. In fact, with Chapter 7, most of your debt would be removed completely, causing your credit report to show that you have little-to-no debt whatsoever.
If you lost your vehicle during the bankruptcy then you likely want to find a way to replace it or find some form of transportation. In the case that most or all of your debt was removed, you now have a unique opportunity. Without any other debt, it will be much easier for you to get approved for a new car loan, provided that you can show proof of income. Lenders are usually happy to approve a car loan to someone following a bankruptcy because they know that you no longer have other creditors to worry about. So, now the question is, should you buy a car following a bankruptcy or should you wait and save money to purchase one outright in order to prevent another financial problem down the road?
The Benefits of Buying After a Bankruptcy
As stated above, you may be able to get approval on a car loan following a bankruptcy despite having low or bad credit. Buying a car directly following a bankruptcy can be beneficial. First of all, if you lost your means of transportation in bankruptcy then a new car will fill that need. Additionally, since the bankruptcy has damaged your credit, you likely want to begin rebuilding your credit as soon as possible and buying a new car can help you accomplish that.
Here are the pros of purchasing a vehicle following a bankruptcy:
- Means of Transportation – which may be vital for you to ensure a steady income.
- May Help Rebuild Your Credit – making regular payments on time will help build positive credit history and slowly improve your credit score over time.
- More Offers to Choose From – after a bankruptcy, you will likely have dozens of dealerships trying to win your business so you will have more options to choose from to get the best deal possible.
The Drawbacks of Buying a Car after Bankruptcy
Depending on the original reason that caused you to have to file in the first place, getting yourself back in debt immediately after filing for bankruptcy could be a risky option. The majority of bankruptcies were filed by individuals with low income. If by purchasing a new vehicle, the car payment puts a strain on you financially, you could end up in the same position you were prior to filing. If, for instance, you were to lose your job or something went wrong with your new car that required expensive repairs, you could quickly fall behind on payments and further damage your credit.
A few cons of buying a car:
- Could Add Financial Strain on Your Life
- Late Payments Could Further Damage Your Credit
- Interest Rates Will Be Much Higher Due to the Bankruptcy
The bottom line is: weigh your options and if you determine that you want to move forward with purchasing a vehicle, make sure that you can easily make the monthly payment. Since your credit score will be lower after a bankruptcy, you will likely have to accept an extremely inflated interest rate which will make the car payments much higher.
Also, make sure that you shop around to find the best deal. If you lost your car during the bankruptcy the tendency is to rush into things. No one wants to be without transportation for very long, however, it’s important that you remain patient and find the right car that will fit your needs and your budget.
For assistance with your credit or if you want to improve your credit score, please contact Credit Absolute today for a free consultation.