There are only a few lenders that will be the first financier to lend funds for a car after a bankruptcy has been discharged.
Depending on the applicant’s circumstances and the explanation behind the bankruptcy, and being able to substantiate those reasons, would then depend on which lender would consider an application.
If there is a reasonable explanation and the applicant is able to show that they have improved their financial position since the discharge of the bankruptcy, they may still be able to get decent car loan interest rates, but the requirement may be to have some equity towards the loan to reduce the borrow amount, such as a trade in or cash deposit to reduce the financier’s risk. The important thing to show the lender would be a good savings history over the last six to twelve months and stability in their residence and employment.
If the applicant had comparable car finance still in place throughout the bankruptcy that was conducted perfectly, this may assist with a normal car loan with competitive interest rates and a wider range of lenders that would consider the application, and may still give the ability to finance the full purchase price on a case by case basis.
Outside of any of the above, the applicant may have to look at a ‘sub-prime’ loan, which would be much higher interest rates as there may not be too many lenders that would consider the application.
A general rule of thumb is that the bankruptcy would be required to be discharged for a minimum of twelve months, no adverse bad credit history on the applicant’s credit file since the bankruptcy and perfectly conducted banking history on all accounts available in the applicant’s name, which would mean that there would be no direct debit dishonours, or the account going into a negative position at any time over that six month period.
It is best to discuss this with a professional such as a finance broker prior to applying anywhere, as a good qualified professional should be able to advise when and how to apply, as it is important to have your application presented in the best possible way with all the relevant information prepared to give a great first impression.
A common mistake is that a previous discharged bankrupt feels that they should apply for a ‘small’ loan first to see if they can get approved, but these ‘small’ loans will show up on their credit file and most lenders are put off by these types of loans. The lender’s opinion is that the applicant is unable to live of their current level of income and needs short term cash loans and the lender will then ask “how will this client pay a car loan repayment off their current level of income when they need to go to short term payday lenders for everyday living?”
Prior to applying anywhere, it is recommended to get good solid advice. Although the first deal may not be the best available, it is a stepping stone to improving the credit worthiness of the applicant.
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