Finding a new car loan while in bankruptcy

Bankrate.com

View gallery

.
Don Taylor
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?

Thanks,
-- Helen Hindrance

Compare Best Auto Loan Rates!

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.

View gallery

.
Young man with car salesman copyright LuckyImages/Shutterstock.com

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.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving and Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.



More From Bankrate.com

Rates

View Comments (0)