Can I get car finance after bankruptcy?
Bankruptcy can be devastating on a personal and family basis, but also to your credit status.
People can experience bankruptcy for all sorts of reasons, some of which may not even be their fault if they were unlucky enough to have a bad business partner or even were unable to trade or work for some period due to events outside their control.
The law offers the option of declaring oneself bankrupt to shield those unfortunate enough to have to deal with ongoing and serious repercussions. Essentially their creditors cannot hound them, but in return, their assets are seized and distributed to their creditors.
The truth is that being recently declared bankrupt has a major effect on your credit score, and the black mark associated can live on your file for a considerable time.
How long does bankruptcy affect your credit score for?
The time limit for bankruptcy on your credit report is often not understood. Most people think that it’s defined to last for six years, which in most cases is true, but not always.
The details of your bankruptcy will usually be removed from your credit report after six years as long as your bankruptcy has been discharged and you have not been reckless, for example, not complied with the details of the Bankruptcy Order – in which case it can be moved to 15 years under a Bankruptcy Restriction Order (BRO).
However, some mortgage lenders will ask if you have ever been bankrupt, so your bankruptcy could affect your creditworthiness forever. If your bankruptcy is never discharged, it can remain on your credit report indefinitely.
It’s worth mentioning that a DRO (Debt Relief Order) will also affect your credit rating for six years where a DRO is applied to those who have a debt of less than £20k and don’t have a regular income or own a home.
How long should you wait after bankruptcy to apply for car finance?
While bankruptcy will stay on your credit report for six years, once you have been discharged, restrictions are lifted leaving you a little more choice financially. Until you’re discharged, the legal limit for borrowing without disclosing your bankruptcy is £500.
So, you’ve been discharged and there’s no longer any limits on borrowing. But, it still will have severely impacted your credit rating and you’ll find it difficult to apply for credit.
The good news is that when it comes to car finance, the longer time elapses since you filed the bankruptcy the better. So while you may find it impossible to get credit one year in to your bankruptcy, it could be a different scenario a few years later.
On top of this, if you have an Income Payment Agreement (IPA), you could find it difficult to manage monthly repayments for car finance alongside this.
It’s important to remember that if you apply for credit and your application is rejected, it will have a further negative impact on your credit rating. So, if you’re concerned there could be a risk of not being accepted, it’s best to seek specialist advice.
Your bankruptcy will make you appear a bigger risk to lenders, so the chances are if you are accepted for finance, you’ll be charged a higher rate of interest.
Can you get car finance after being bankrupt?
Enough of the doom and gloom, though – Can you get car finance after being bankrupt?
The good news is that there is a possibility of being accepted for car finance on your chosen car. This is done through a finance agreement which allows the possibility of car finance and car lease for bankrupts.
At Hippo Motor Finance, we have a panel of proven lenders. These lenders run from the prime credit lenders right the way through to specialist lenders, some of which will consider those that have a bankruptcy mark on their credit file.
We won’t sugar coat it. You’re likely to have to pay a deposit on the vehicle and it’s likely to be higher than someone with a good credit history.
Due to the way APRs work, the APR (Annual Percentage Rate) is also almost certainly going to be higher in order to reflect the fact lenders will consider you a greater risk than their average customer.
Car finance providers, like some of the ones we work with, provide finance for those with very poor credit. That means that despite your bankruptcy, there’s a possibility you’ll be accepted for car finance.
It’s worth noting though that some lenders impose stricter rules surrounding monthly repayments for those who have been bankrupt.
So, if you miss a payment, you’re more likely to get less leeway than those without the mark on their credit file. And some lenders will stipulate that the vehicle must be fitted with a “black box” which is a device that can be used to disable the vehicle if you miss a payment.
Some lenders also make provision for early repayment and redemption fees. This may seem strange on the surface, why would they penalise you for paying off the car early?
The reasoning, for some lenders, is that you were a higher risk while paying off the car, so they need to reflect this in the event that you cleared the debt early as they will not benefit from the interest over the balance of the loan.
These charges can equal up to as much as two month’s interest, and the sooner the finance is paid off, the higher the fee can be. This is down to the interest components the lender will attach onto your finance and can considerably increase the cost of your finance agreement.
As has been previously mentioned, a poor or bad credit score doesn’t have to prevent you from financing and driving away with a car, especially thanks to our bad credit car finance offering.
It’s become easier to finance cars with bad credit thanks to lenders’ understanding that most people require a car, and despite their bad credit score, can afford to pay for one.
Lenders often have their own independent underwriting teams that look at all the factors and manually underwrite your loan.
The reality is that a bad credit score implies you are a higher risk than someone with a good credit score.
With a good credit score, you’ve proven to be organised and on top of your finances. However, if you can prove that you can make the monthly repayments, then you’re more likely to be accepted.
This means that you might need to provide extra paperwork when applying.
Tips for getting a good deal after bankruptcy
Following a bankruptcy, you’ll probably want to get back to a good financial position as soon as possible.
However, the general advice is a slow and steady rebuilding of your credit is the best way forward, and over time you’ll get things back to how they were.
To improve your credit rating:
- Make sure you are registered on the electoral roll, as lenders use this to confirm your identity, as well as seeing it as a sign of stability
- Ensure everything is paid on time. An impeccable payment history will stand you in good stead with lenders
- Check your bankruptcy has been marked as discharge on your credit report. Once this step has been taken your rating can start to rise again
Once you’ve started to get your credit rating moving in the right direction, there are other ways you can get a better car finance deal.
- Save for a deposit. The larger your deposit, the less you’ll have to borrow and this will be of less risk to the lender. Remember, interest rates after bankruptcy will be higher, so it’ll benefit you to put more down initially, too
- Don’t make multiple applications. When you apply for any kind of credit, the finance company will carry out a hard search. This will show up in your credit report and too many applications can have a negative effect on your score
- Seek advice. If you’re unsure who may accept you or need to get the best deal you can, it’s best to speak to someone who has experience in dealing with car finance applications following bankruptcy
Bad credit and financial difficulty car finance specialists
At Hippo Motor Finance, we have years of experience helping customers find car finance following bankruptcy.
Our trusted specialist panel of lenders will base their decisions on your current circumstances and ability to repay, finding a solution that’s affordable for you. We’ll only ever use a soft search to check you eligibility, so you can find out without it harming your credit score further.
And there’s never any judgement. We’ll just do everything we can to find a finance deal that’s right for you – even if you’ve been refused elsewhere.
If you know your budget and the type of car you’re looking for, enquire with us and we’ll find you the right deal to suit your circumstances. Unlike most providers, Hippo Motor Finance offers you a car and finance deal in one hassle-free package. So, even if getting finance when bankrupt is not completely simple, we try and make it as easy as possible at Hippo.