Bankruptcy and car finance explained
Car finance after bankruptcy: everything you need to know
If you’ve been bankrupt, getting car finance can be a challenge. But don’t worry — there could still be options for you. This guide will explain how you could get a car loan after bankruptcy and what to expect.
What is bankruptcy?
Bankruptcy is a form of insolvency that usually lasts for around a year. It’s typically an option for people who are experiencing serious financial difficulties and are no longer able to pay their debts. Declaring bankruptcy is a big decision that can affect your financial future, including your ability to secure a car finance loan. This means that bankruptcy is often a last resort, as it can have a major impact on your financial situation.
If you're struggling with debt and you are considering your options or means of support, you should speak to a financial advisor. Some examples of what they might explore could be:
In some cases, bankruptcy may be the right option if you're looking for a fresh start. Your financial advisor should be able to advise you of the right option for your needs.
Can I get car finance during bankruptcy?
During the time that you’re declared bankrupt, it’s highly unlikely that you’ll be able to secure any type of car finance. Most lenders won’t give loans to bankrupt applicants. And, if you want to borrow more than £500, you legally must tell lenders about your bankrupt status.
Your receiver may also put restrictions in place that prevent you from applying for loans. If you’re found in breach of these restrictions, you may be at risk of receiving a court order and your bankruptcy discharge could be suspended.
If that sounds like a lot of doom and gloom, it may be helpful to remember that once you are discharged from bankruptcy you can work on improving your credit score and we might be able to help you find a car finance loan that fits your needs. Please remember that credit is subject to status.
Can I get car finance after my bankruptcy has been discharged?
At Car Finance 247, we believe everyone deserves a chance to drive a car, no matter their financial situation. We can't guarantee car finance, but we'll do our best to find you a suitable loan from our wide range of lenders after your bankruptcy is discharged.
Some of our trusted lenders specialise in trying to offer bad credit car finance, whether or not you’ve had CCJs, been in an IVA, or been bankrupt in the past.
However, it’s important to note that your bankruptcy status will remain listed on your credit report for up to six years, and this will show lenders that you’ve had financial problems in the past. For this reason, you may need to agree to pay a higher rate of interest or face restrictions on the amount you can borrow to qualify. Credit is subject to status.
There are ways you can improve your chances of car finance after bankruptcy. Here’s how:
How to improve chances of loan approval after bankruptcy
Follow these steps which could help improve your chances of getting a post bankruptcy car finance deal:
Wait until your bankruptcy is discharged – Lenders may be more likely to approve bankruptcy car loans once your bankruptcy is over.
Check your credit score – After bankruptcy, your credit score may be low. Check your score and look for mistakes on your report.
Save for a deposit – A bigger deposit could help you get better terms on car financing with a bankruptcy. It can also show lenders that you are responsible.
Choose a specialist lender – Not all lenders offer car finance for people with bankruptcy. But some of our specialised lenders could help people with bad credit secure car finance, subject to status.
Consider a guarantor – A guarantor is someone who promises to pay if you can’t. Having one could help you get approved for car finance if you’ve experienced bankruptcy.
Show stable income – Lenders want to see that you can afford the repayments. Having a steady job could improve your chances of getting a car loan.
By improving your credit score, saving for a deposit, and choosing a specialist lender, you could increase your chances of approval.
How does bankruptcy affect my credit score?
There’s no sugar-coating it – bankruptcy will have an impact on your credit score. And not only will it affect your score during your bankruptcy period, but it will also stay on your credit report for up to six years. If your bankruptcy is never discharged, you could even find that it will remain on your report indefinitely.
When you declare yourself bankrupt, your name will also be listed on the Individual Insolvency Register, which is available publicly online.
When your bankruptcy has been discharged and you start looking to take out new types of loan (including car finance) lenders may ask you about your bankruptcy. To apply for car finance, you will also need to have your credit score checked. It’s worth keeping in mind that it could take some time for your credit score to recover, so you may want to consider waiting before making an application. Credit is subject to status.
How can I improve my credit score after bankruptcy?
Credit scores aren’t an exact science, and they can be affected by a range of different factors. However, there are a few steps you could take to help boost your score over time after bankruptcy:
Pay your bills on time - Missing your monthly payments is sometimes unavoidable, but a delay could have a negative impact on your credit score. Try to reduce the chances of paying late by setting up an automatic direct debit.
Check your credit report – There are several services that allow you to check your credit score for free in the UK. This is a great habit to adopt as it helps you spot mistakes quickly. If you notice something on your report that doesn’t look right, challenge it with the relevant credit reference agency as soon as possible.
Improve your credit ratio – Maxing out your credit cards and using your entire overdraft every month may not improve your score. Instead, using a smaller percentage of the total credit available could help show that you’re a responsible borrower. For this reason, consider keeping your existing credit cards open if you pay off the balance every month.
Get on the electoral roll – You can register online for free in minutes. Make sure you register each time you move house so that your credit profile is up to date.
Limit new credit applications – Each time you apply for credit where a hard search is carried out, this is marked on your credit report. Too many hard searches in a short period of time can concern lenders as they may worry that you’re relying on credit too much.
Check your linked accounts - If you have finance with someone else, like a joint credit card or mortgage, your credit profiles are linked. Their financial behaviour can affect your credit score. Keep this in mind whenever you’re thinking about taking out a new joint loan.
By following these steps, you could improve your bad credit score, which could make it much easier to find an affordable car loan. Credit is subject to eligibility criteria.
Can I get car finance with bad credit?
Yes you could, if you have bad credit for any reason (including a past bankruptcy), you may be able to secure a car loan - even if you’ve been refused car finance elsewhere.
At Car Finance 247, we understand that credit scores come in all shapes and sizes and sometimes your credit score needs some work. But having poor credit doesn’t mean you need to give up on car finance.
While we can’t guarantee that we’ll be able to find you an approval, we consider every application individually, and our panel of lenders takes a range of factors into account. Credit is subject to status.
To see whether you could be eligible for a deal, get an obligation-free quote today. Or, if you feel that you need a little more information first, contact our friendly team.