How to Refinance a Car After a Bankruptcy


Refinancing a car after bankruptcy is a smart way to reduce expenditures and reach a more manageable budget. However, filing for bankruptcy adversely impacted your credit score, creating an issue when refinancing, because lenders use your credit score to calculate the risk they assume in working with you.

To get the best deal, you must show your lender you can handle the financial responsibility of the new loan. Acquiring evidence of your ability to pay takes time.

Refinance a Car


Things You’ll Need

  • Credit score for you and a cosigner


How to Refinance a Car After a Bankruptcy


Step 1 :: Find someone with decent-to-excellent credit willing to cosign for you. A cosigner obligates multiple parties to pay, which increases the odds the lender will receive what you owe. For this reason, lenders may work with you and a cosigner, even when your personal credit is less than stellar.

Step 2 :: Do everything you can to improve your credit score. Be ruthless about paying all your bills on time for at least six months. Get your credit report from one of the three major credit bureaus (Experian, TransUnion and Equifax) and correct any discrepancies. Expect corrections to take up to two months as creditors and the credit bureaus work to verify report accuracy.

Don’t apply for refinancing until your score is at least 600, and don’t expect zero percent financing. Most lenders will not offer those terms unless your score is 750 or above, and that is difficult to achieve with a bankruptcy on your record. A copy of your own credit score is a powerful advantage during refinancing because your lender will need to explain discrepancies if the credit score from the reporting agency is significantly different than the one you obtained.

Step 3 :: Start a savings account. In addition to your credit score, auto lenders look at your assets in determining whether you can repay a loan. A little money in the bank helps you look more attractive to a lender, especially if you can show consistent deposits.

Step 4 ::  Have your cosigner also document income and get a credit report. This will help bolster your case.

Step 5 :: Call your lender or new lenders you want to try. Ask whether you can refinance based on the dealer invoice value or trade-in value. Also ask the minimum credit score required for refinancing, the name of the lender’s credit reporting agency and the percentage of the value the institution is willing to lend. Compare rates and fees.

Step 6 ::  Go with your cosigner to the lender who can offer you the best refinancing option. Verify the rates you were quoted are indeed the best you can get. It may help to provide documentation of the vehicle’s current value, but the lender will care more about how much you still owe on your initial loan. Negotiate with the lending officer and apply for the new loan.


Tips & Warnings

  • Check the reputation of your lender with the Better Business Bureau (BBB) before signing your refinance paperwork. As someone with bankruptcy, you’ll probably have to opt for a sub-prime lender. Unfortunately, some sub-prime lenders are out to take advantage of people in poor credit situations.
  • During negotiations, see what your options are for the duration of the loan. Having a shorter loan may mean higher monthly payments, but because you will pay off the loan faster, you will end up paying less in interest. This can make a significant difference in the overall loan cost, since lenders probably cannot give you the best interest rates due to your bankruptcy.


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