Car loans for discharged bankrupts in Australia
While bankruptcy is usually viewed as a last resort, unavoidable life events such as sickness, unemployment, divorce, or plain bad luck can force many of us down this path.
Unfortunately, when you declare bankruptcy it makes it much harder to secure any form of car financing.
Your bankruptcy will normally stay on your credit report for 5 years, which means you'll have a hard time getting credit during that period.
The good news is that there are lenders who offer car and personal loans to those who have been discharged from bankruptcy or a Part IX Debt Agreement after a period of time.
To secure finance, you will need a solid explanation as to why you went bankrupt and why this time, things will be different.
Can I get a car loan while bankrupt?
Unfortunately, it’s pointless applying for any kind of car finance while you’re bankrupt as there are no car loans for current bankrupts in Australia. If you’ve already declared bankruptcy the best thing you can do is to begin to position yourself as a stable person by holding down a regular full-time job, remaining in the same residence and building your savings where possible. Lenders will only approve a loan if you have been discharged for a minimum of 12 months.
What does it mean to be "discharged"?
This means that the period of bankruptcy has finished. Even if the bad record on your credit file has not been eliminated, you will be able to apply for a discharged bankrupt car loan or a bad credit loan. Being discharged from bankruptcy gives you a second chance to start over financially.
How to Improve your application
There are several ways to improve your application in order to make sure that the process goes smoothly for you. This is where thinking like a lender comes in handy. It means examining your credit file for any outstanding debts, demonstrating a consistent source of income, ensuring that your bills are paid on time, and avoiding applying for loans too frequently in a short period of time. You can call and talk to our lending specialists about how you might increase your chances of getting an ex-bankrupt car loan.
Can you demonstrate an improved financial position
If you’ve got a reasonable explanation for your bankruptcy and you’re able to show that you have improved your financial position since the bankruptcy was discharged, you may be able to get a car loan with a decent car loan interest rate, although you may be required to have a large trade-in or deposit to reduce the size of the loan.
If you don’t have a great explanation, a good savings history over the last six to twelve months could help to get a lender on side.
If you had an existing car loan that you were able to meet repayments for and retain during your bankruptcy there is a good chance you’ll be able to find another car loan once you’ve been discharged.
If that sounds like you, it’s a good idea to speak to one of our lending specialists about your situation and the bankruptcy car loans that may be available.
You could be eligible for a no credit check car loan
If you don’t fall under any of the above, but still need a car loan, there’s a good chance the only options that will be available to you will be ‘sub-prime’ loans.
These loans come with much higher interest rates than normal car loans, but if they enable you to get moving and get your life back on track the high interest may be worth it.
Many clients find they are able to refinance their bad credit car loans after a few years of repayments for a much lower interest rate than they were initially offered.
A minimum discharge period of 12 months is usually required
In general, before applying for a car loan, financiers will require you to be discharged for a minimum of twelve months and have no adverse credit history on your credit file since you declared bankruptcy.
Your credit file also includes your banking history, so make sure you don’t miss any direct debits or overdraw any of your accounts during or after your bankruptcy.
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.
While that might sound reasonable, the lender may interpret small cash loans as a sign that the applicant is unable to live off their current level of income, so cannot afford car finance. Never use payday loans, they only put you further behind.
Should you declare bankruptcy in the first place?
If you have not yet declared yourself bankrupt, it is a decision that needs to be taken very seriously. Sometimes, there may be better options as bankruptcy will affect you for the longest period out of any kind of credit file issue.
If you have the ability to make arrangements with your creditors, even if they place a default on your credit file, this can be a much better long-term solution, as those defaults will drop off your file quicker than a bankruptcy will and you also won’t be noted on the bankruptcy register.
A Part IX Debt Agreement could be another option, but this is treated in much the same way as a full bankruptcy by many auto financiers and will stay on your file just as long as a full bankruptcy. However, when you are discharged, you may have a few more options when looking to obtain approval on a bad credit car loan as you still kept up your obligation by making payments towards your debt agreement.
It is best to review all your options and get good, independent, legal advice prior to declaring bankruptcy as it is a long term decision that can have impact on your credit history for quite a lengthy period of time. It’s important to remember that there are businesses out there offering credit repair and debt help services. These organisations may not have your best long-term financial interests at heart as they are businesses like any other. So always get solid, independent legal and financial advice before declaring bankruptcy or entering into a Part IX Debt Agreement.
Talk to one of our car finance brokers today
If you’re looking for a car loan and have just been discharged from a bankruptcy, it’s generally best to speak to a professional such as one of our lending specialists prior to applying anywhere, as they will be able to advise when and how to apply as well as knowing who offers the best loans for discharged bankrupts.