by Julianne Mercer, Negosentro.com |
Lenders minimize risks by taking into account the credit score of the borrowers as it indicates their reliability. However, trying to play too safe can result in lenders losing business opportunities. This is something they can hardly afford in today’s market. That is why they resort to taking calculated risks after ensuring that the risks are not going to result in a loss. The strategy of controlled aggression works well in these cases. People with bad credit scores can often benefit from this approach as they can secure car loans that seemed out of bounds for them.
What happens with people who have filed for bankruptcy and still want to avail car loans? Looking from the angle of conventional business, if you are bankrupt, you should not dare to even dream of getting any kind of loan. Bankruptcy is bad for securing loans because it impairs the credit score in the long term. If you file for Chapter 13 bankruptcy in the US, the blotch reflects in your credit score for seven years. If you file it under chapter 7, the damage will be even more and goes up to 10 years. However, it does not mean the end of the world, and you stand a good chance to be favored by lenders if you can win back their trust is some other way. Read on to know how you can secure a car loan by overcoming the hurdles of bankruptcy.
The challenge that you face
Filing for bankruptcy will push your financial status so deep down that bringing back some respectability to your credit score should be your prime target. This will give you the toehold that can help you to crawl back to normal level in the course of time. You have to overcome the stigma of bankruptcy that has disqualified you from securing loans by taking measures of repairing the credit score. However, you are in a vicious cycle because it is tough to get loans with bad credit, and unless you get loans, your credit score does not improve. The best way to cut ice with lenders is to regain their confidence in some other ways that can pave the way for securing a car loan. Look for lenders who entertain people with bad credit and start rebuilding your financial credentials with the following options.
Find a cosigner
Your best bet to win the confidence of lenders is to find a cosigner who agrees to lend his or her credit scores to you so that you can use it for borrowing money. You have to get involved in two different borrowings. When seeking a cosigner, keep in mind that although you will be able to make use of someone else’s credit score, the credit rewards that arise from the transaction will get divided between you and the cosigner. Once you manage to get the loan, you can start the process of rebuilding your credit score. The first loan that you get will come at a good price as the interest rates will be quite high. However, in the long run, you stand a good chance of getting loans at lower interest, provided you pay back the initial loan on time.
Provide additional collateral
It is easy to get car loans because it is a secured loan as the car is a collateral asset. However, because you are bankrupt, this will not be enough for you to qualify for the loan. To be eligible for the loan, you have to provide additional collateral security because the lenders want more than the standard assurance that you will not default on the loan. Adding more assets mean that you are likely to bleed again because the asset gets removed from the asset list, and this affects the debt asset ratio adversely and pushes the credit score further down. It is like taking a step backward to leap two steps ahead.
Arrange for character statements
To depict the accurate picture that resulted in bankruptcy, you have to provide an authentic document such as a white paper that contains the facts about it. Arrange to secure character statements from your friends, acquaintances or other lenders that clearly state the background and reason that led to bankruptcy. It should also mention the reasons why it is no more a risk to lend money to you. The statement will help you to establish a case in your favor that can assure lenders that you will not default if they give you a loan. It is a way of certifying your credit worthiness in the absence of the right credit scores. Overall, the statements should indicate that you have been able to come out from the financial problems that had resulted in bankruptcy.
Provide proof of income
Lenders are interested to know if you have a steady income because they use it as an index to determine the reliability of the borrower. Post-bankruptcy, providing proof of revenues acquires more importance. You can arrange for a certificate of income from your employer as proof or can provide paycheck stubs to convince lenders about your income. The longer you remain employed with a particular organization, especially if it is your latest employer, the better it is to prove your stability of income. Additionally, if career advancements such as promotions have taken place during this time, it will reflect well on your credentials. Lenders want to verify that you have a consistent income. They do not prefer high income that is sporadic in nature.
Significant down payment
You have to demonstrate to lenders that you have the money to carry on with the loan payment, and you have to prove your good intentions of honoring your commitment to them. Make sizeable amount of down payment that can reduce the amount of loan that you take. It will also show that you have enough money to part with to secure the loan. In addition to that, you can agree to higher monthly repayment. This will show your willingness to pay back the loan at the earliest.
One of the above methods or a combination of these can help you secure a car loan even after bankruptcy. It is the first step that you can take for reconstructing your credit score.