For most people, filing for bankruptcy signifies a dead-end in their financial journey. Filling for bankruptcy has a huge negative impact on your finances.
The effect it has on credit score is almost impossible to rebuild, especially if you plan to get a car loan. Although it might seem challenging to get a car loan after bankruptcy in Canada, it is impossible.
Bankruptcy is not something to be scared about; in fact, it is quite a common practice in Canada. Most prominent lenders are willing to approve your loan application even after bankruptcy.
Filing for bankruptcy is not the end of your financial journey; you can still get a car loan. Let’s take a look at how you can get a car loan after bankruptcy in Canada. The pros, cons, and how to avoid bankruptcy yet again.
Getting a Car Loan After Bankruptcy in Canada
Bankruptcy gives one a fresh start from debts. When you file for bankruptcy, you will be free from your creditors and debts. However, in Canada, the bankruptcy status will remain on your credit history and profile for six years.
But not to worry, this won’t affect your ability to get loans if you go about it the right way. Whether or not one files for bankruptcy, getting a loan will undoubtedly be one of the options when we can’t afford to cater to our basic needs.
You can get a car loan after bankruptcy in Canada, and on the plus side, you don’t have to wait the entire six years for the bankruptcy status to be removed from your profile. However, to get it, you need to provide collateral.
Also, you can only get a car loan from alternative lenders and not your regular banks or traditional lenders. When your bankruptcy status is removed, you will be able to get a car loan from most lenders, although your credit score will be low.
Alternative lenders, however, have higher interest rates compared to traditional lenders and banks. This means that you will pay a more significant amount. Also, during your bankruptcy period, your finances are monitored and managed by the Licenced Insolvency Trustee. Note that your collateral depends on your financial situation.
As mentioned above, regardless of your financial situation, some lenders will still approve your loan. Below are five lenders that will give you a car loan despite your bankruptcy status;
- Loans Canada
They can provide you with a car loan ranging from CA$500 – CA$50,000 at an interest rate of up to 46.96%. This loan comes with a repayment term of 12 – 18 months.
Their car loan for bad credit (bankruptcy) ranges from CA$500 – CA$35,000 with an interest rate ranging from 29.9% – 46.96%. This loan comes with a repayment term of 9 – 60 months.
- Car Loans Canada
Despite your bankruptcy, you can get a car loan that ranges from CA$7500 – CA$59,995 with an interest rate from 3.95% and above. It comes with a repayment term of 12 – 96 months.
- Canada Auto Finance
Their car loan ranges from CA$5000 – CA$45,000 with interest rates from 4.90% to 29.99% and a repayment term of 36 – 72 months.
- Splash Auto Finance
Splash Auto Finance offers a car loan of up to CA$50,000 with varying interest rates. Their loan comes with a repayment term of 12 – 84 months.
Pros of Getting a Car Loan After Bankruptcy
Getting a car loan after bankruptcy might seem a bad idea if you’re not doing it right. Below are some perks that come with doing this:
- Rebuild your Credit Score
While you wait for your bankruptcy status to be removed, you should build a credit score so that you can have a fair credit score by the time it is removed. This will give you access to better loan offers.
Having a car loan is one of the best ways to rebuild your credit score after bankruptcy. Most lenders use a credit scoring model to evaluate your application.
It is advisable to make timely monthly payments of your debt. A car loan is huge, so proving that you could get one and repay it one time boosts your credit score.
- Longer Repayment Term
Despite the higher interest rates of alternative lenders, you get a longer repayment term than banks or traditional lenders. This means that the amount you repay monthly will be lower because you can spread the payment across an extended period.
- Ownership of a Vehicle
As soon as you pay off your car loan, it becomes yours. Cars are assets, so it is an advantage for you. And since a car loan improves your credit score, you have a better chance at getting better loan deals subsequently.
Downsides of Getting a Car Loan After Bankruptcy
Although getting a car loan after bankruptcy has its perks, there are also some downsides about this move. Below are some of the cons of getting a car loan after bankruptcy in Canada:
- Higher Interest Rate
Compared to banks and traditional lenders, getting a car loan after bankruptcy through alternative lenders comes with higher interest fees. Which means you will pay way more than usual for the vehicle.
- Cars Depreciate
While getting a car is an asset, they depreciate over time and lose value. Seeing as the interest rates are high, getting a car loan after bankruptcy may not be the best thing to do because, in the end, the car value may depreciate. It might be safer to purchase a pre-owned or used car.
- Yet Another Debt
While bankruptcy frees you from your creditors and debts, getting a car loan right after it will naturally increase your debt. Sometimes, waiting out the six years may be the best option.
Tips on Securing a Car Loan after Bankruptcy in Canada
After considering the pros and the cons and you still want to go ahead with getting the loan, here are some things you can do to improve your chances of securing a car loan after bankruptcy;
- Improve your credit score
Try to improve your credit score before applying for a loan. You can do this by getting a secured credit card. You can have money in the credit account that can be used as collateral. Even with your low credit score, you can get one.
Save as much as you can so you can make a down payment that will relieve you of the larger amount you have to pay later on. It will also give you a better loan term.
- Avoid Numerous Loans
It is not advisable to take too many loans. When you have lesser debts, it makes you more eligible to get a car loan after your bankruptcy.
- Compare Terms
Ensure that you get the best deal. Remember to research different lenders and compare their rates, terms, and conditions before signing up. You can do this with a loan comparison platform for a more detailed and accurate comparison.
How to Avoid Bankruptcy
if you’ve filed for bankruptcy once, it is crucial to avoid filing again. Even in getting a car loan, having too many debts can discourage lenders. You can decide to wait to finance your loans; you can make down payments.
Budgeting is also an essential tool that will help you plan and allocate the available money accordingly. There are different budgeting and saving applications that can help you with it. Avoid unnecessary debts and adjust your lifestyle to your income.
Generally, filing for bankruptcy automatically hinders your chances of qualifying for standard loan terms. It is advisable to weigh the pros and cons of getting a car loan after bankruptcy, and if you can handle it, go ahead and get it. Ensure you take the necessary steps and get the best deal you can.