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Financing a Car: How Can You Buy a Car After Bankruptcy?

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author photo by Doug DeMuro October 2014

If you've filed for bankruptcy, or if you're considering it, you probably already know that you may have difficulty with financing a car in the future. Lenders tend not to want to loan money to people who have defaulted on debt in the past, but there are many avenues to consider. So how should you go about buying a car after bankruptcy? We have a few tips and suggestions.

Think Beyond Traditional Banks

One place where drivers might find slightly relaxed lending practices is a credit union. While large national banks might not be willing to finance people whose credit score is below a certain level, a local credit union may have a little more flexibility. This may not always be the case, but it's worth a try if you're interested in getting a new car.

Another option is to visit a few dealerships. Although many dealers go through traditional banks or lenders, some use companies that can help customers with dinged-up credit or a recent bankruptcy. As a result, a dealer may be more helpful in finding you financing than a bank or a credit union.

Buy Here, Pay Here?

Another way to avoid traditional banks is to visit a Buy Here, Pay Here (often abbreviated as BHPH) used-car dealership. They usually don't go through banks or lenders for loans, meaning that drivers purchase their car and negotiate payments directly with the dealer.

There are both benefits and drawbacks to visiting a Buy Here, Pay Here car lot. Among the benefits is the fact that virtually any driver will be financed -- and the fact that you won't have to deal with a large bank if you fall behind on payments. Instead, you'll be talking to a local dealership who knows your situation.

However, BHPH dealerships come with a few caveats, too. Most notably, they typically sell older cars with higher mileage, which means the car you buy might need maintenance or repairs before long. Additionally, they often charge high interest rates. That being said, we certainly think a BHPH dealer is worth a look if you've had issues with credit.

Other Tactics: More Money Down, Budget and Prepare

Another way you might be able to improve your chances is by putting more money down when you're buying a vehicle. This isn't possible for many drivers who've recently emerged from bankruptcy, of course, but lenders will be much more willing to finance if they see less risk. Putting more money down is an easy way to decrease a lender's risk and increase your chances of a getting a loan approved.

Another tip for shoppers emerging from bankruptcy: Budget properly and prepare for the worst. Financing a car can be an expensive proposition even without bankruptcy -- and with bankruptcy, you could end up with a high interest rate and expensive monthly payments. As a result, we strongly suggest that you budget for a high payment -- and be prepared to get turned down a few times until you finally find a lender who agrees to approve your loan.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Financing a Car: How Can You Buy a Car After Bankruptcy? - Autotrader