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5 min read Published June 22, 2022
Writer: Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances through providing concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee
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Therefore, this compensation may influence the manner, place and when products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other elements, such as our own proprietary website rules and whether the product is offered in your region or within your personal credit score can also impact the manner in which products are featured on this site. Although we try to offer a wide range offers, Bankrate does not include information about every financial or credit item or product. If you apply for Chapter 13 bankruptcy — sometimes referred to a repayment bankruptcy credit will take a hit, and it will stay on your credit profile up to seven years. When you file Chapter 13 bankruptcy, you are required to sign a repayment agreement that is approved by the court, explains Amy Lins, vice president of enterprise learning at, an agency for credit counseling that is non-profit based within Sugar Land, Texas. “This repayment is made over three to five years. This means that you are not able to take on any additional debts,” says Lins. “However the court acknowledges that life is unpredictable and it could be necessary to acquire an automobile prior to the end in the Chapter 13 repayment plan.” It is possible to obtain an auto loan however your options will be restricted. How to get a car loan while in Chapter 13 bankruptcy If you have enough cash to buy the purchase of a vehicle, you could simply purchase a vehicle for cash , without having to go through the court. But, you might need to modify your bankruptcy plan in order to get it changed, so consult your attorney before making any decisions. If you require an auto loan even though you’re on the repayment plan and before you’re discharged from bankruptcy, it is possible to do so. There are four steps you can follow, according to Lins. 1. Create a new budget to show that you can afford the car loan. You’ll have to prove that you are able to manage your debt repayment with other financial obligations and responsibilities , as well as the payment for the car. “If the purchase of a car is likely to affect other aspects of your repayment plan, work with your lawyer to develop a new proposed payment plan” advises Lins. 2. Find a lender who can work with Chapter 13 bankruptcies There are very few car dealers and lenders who can work with individuals with active bankruptcy but there certainly are some that will, says Lins. “Your bankruptcy lawyer may be able to give you an inventory of lenders and dealers that are willing to work with you and you should check with your local credit union or bank.” Additionally, as your credit score is likely to be impacted by bankruptcy, be prepared for greater interest rates, charges and less favorable terms. You’ll also need to find a dealer who works with you to get your car financed. Even though your options are slim, do your due diligence and compare rates and terms from several lenders. The offer must be submitted, including the purchase price, monthly payment and interest rate in writing and submitted an application to the judge, according to Lins. “Keep the purchase price as low as possible and then wait until you are able to discharge bankruptcy and repair your credit before buying a larger vehicle,” she says. 3. File a motion with the court to buy the vehicle. In order to take over the car loan while still repaying your debt You’ll need to file a motion with the court to have it approved. This requires bringing your application and having a solid explanation of why you need to purchase a vehicle and the reason you’ll need to obtain financing in order to do so. Perhaps your car was damaged in the last down and the repairs are so significant that financially it is more sensible to buy a brand new car. You reside in a place where public transit isn’t easily accessible. This step is something your bankruptcy lawyer can help with. 4. Make the purchase after the purchase has been approved by the court you will then be able to obtain your car loan and then get your car. Purchase the car and start paying the loan off along with other obligations. How do you get a car loan in the aftermath of Chapter 13 bankruptcy Once you have completed your court-ordered debt payment and you are released, you will not need to go through the courts to obtain your approval. If you’re in a position to, use the vehicle you own until you are at least six months after discharge, says Lins. Increase your credit score are several ways to improve your credit score, such as obtaining and using a secured credit card. A secured credit card means making a small down payment which acts as collateral. The deposit is then used as the credit line for your credit card. “Charging and paying smaller amounts over time will assist in reestablishing an excellent credit score,” says Lins. You can also look at services that will report rent as well as other bills like cell phones, utilities and streaming services, to help establish or improve your punctual payment history, according to Lins. “These services typically charge an affordable fee, however certain are absolutely free,” she says. “Using your rental and utility bills to establish credit history could be a great way to start the process of rebuilding.” Check your credit. Besides repairing your credit, you will need to keep track of it. This will let you know the progress you are making and the kinds of changes that can be made. Also, monitoring your credit frequently can help you spot errors which could affect your credit score later on. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Some credit cards provide an annual free look at your credit score. Find an affordable car. Be sure to select a car that’s within the realm of the amount you are able to afford. is a sure way to stay on top of your payments. This in turn can aid in rebuilding your credit and help you stay on the right track. Check your expenses for the month to determine how much of a car loan your budget can allow. In general automobile-related expenses shouldn’t exceed 20 percent of your total monthly budget — an amount that covers the cost of gas maintenance, insurance, and. It is also possible to set a target price to purchase your car using the information available online through websites like Edmunds and Kelley, which provide used and new prices for cars, and insurance cost estimates. Make a down payment The , the less you’ll owe on it in the near future. Look at your budget and determine what you can be able to save every month towards buying a car. The ideal is to save as much money as you can but ultimately it comes to your income as well as your expenses and obligations. Alternatives to getting a new car loan If you’re unhappy with the terms and rates that are offered with the car loan or you are having difficulty getting your loan approved at all, consider other options. Shopping for a lower-priced vehicle. Even if your interest rate is very high, your total payment and how much you owe monthly will be more affordable. Be patient and pay off the loan later, once your credit has improved. When you have rebuilt your credit score, you’ll likely qualify for a wider variety of auto loans with lower rates of interest, fees , and better conditions. Cash out completely. Saving money and paying cash outright for a car means you won’t have to seek a car loan for any reason and will be able to save in interest fees. But if you need to purchase a car earlier then later may need to take out a . The bottom line is that getting an auto loan during Chapter 13 bankruptcy is possible. Find an lender that is willing to deal on Chapter 13 bankruptcies and create an appropriate budget that permits you to pay off debt while also paying for a car loan. It’s also crucial to research the market to find a car that fits within your budget. After you are discharged from bankruptcy, financing options are available. But the primary goal is to repair your credit by setting up a track record of consistently making debt payments in time. “It’s an old saying, but time really does heal all wounds, even wounds in your score” says Lins. Find out more
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Written by a contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down otherwise complex topics into manageable bites.
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