While filing bankruptcy will cause a decrease in your credit score because it is a negative mark on your credit report, long term, filing bankruptcy will actually improve your credit score by cleaning up old accounts, collections, and judgments. It will take time but you will qualify for a loan after bankruptcy. One very important thing to remember — you cannot apply for a loan or incur new debt while you are in a bankruptcy without court approval.
Personal loans after bankruptcy are generally the easiest to obtain; however, you will pay an extremely high interest rate. Companies that offer personal loans are known to overcharge their customers by charging fees that mortgage companies and other lenders do not charge. If you do need to apply for a personal loan after bankruptcy, read the fine print and pay off the loan as soon as possible to avoid paying more interest. Beware that if you miss payments on a personal loan, the fine print in the contract may give the company the right to charge a higher interest rate, late fees, and other charges that will increase your loan amount.
Obtaining a car loan after bankruptcy is not as difficult as you may believe. Many lenders are willing to approve car loans for debtors because they know that the debtor discharged his or her unsecured debt; therefore, the car loan may be the only debt the individual will owe. The length of time you must wait to obtain a car loan after completing your bankruptcy case depends largely on the creditor. You may apply for a car loan immediately after your case is closed; however, you should shop around for the lowest interest rate and the best terms.
Car dealers that offer to finance the purchase of a vehicle (buy here – pay here places) advertise that they approve anyone regardless of their credit rating. Unfortunately, these companies charge high interest, can be extremely difficult to deal with, and rarely report your payments to credit reporting agencies. You want the lender to report your on-time payments as this helps to improve your credit score after bankruptcy.
Qualifying for a mortgage after bankruptcy is a little more complicated because mortgage lenders require you to wait a certain period from the date of your discharge to apply for a mortgage. The type of mortgage, the lender, and the chapter of bankruptcy you filed determine the length of time you must wait to apply for a mortgage.
Subprime lenders offer non-government backed loans; therefore, you may qualify for one of these mortgages immediately after bankruptcy. This is probably not in your best interest because the interest rates and closing costs are extremely high. If you focus on improving your financial situation between the close of your bankruptcy case and the waiting period for a traditional mortgage, you will obtain a lower interest rate and be in a better financial position to pay the mortgage payments on time.
You should not sit around and do nothing after bankruptcy while you wait until you qualify for a loan. Taking steps to improve your credit score will help you qualify for a better loan sooner. Steps you can take include:
As you can see, filing a bankruptcy does not prevent you from obtaining a loan in the future. There are a few rules, such as mortgage waiting periods, that you may need to work around, but after your bankruptcy discharge your credit score will only go up.