Car Finance After Bankruptcy

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It can be tough or even may seem impossible to get car finance if you’ve been declared bankrupt. As a result of bankruptcy, many implications can affect your chances with the lenders. Though the good news is that help is still available, even after the bankruptcy. After 12 months, you’ll be a discharged bankrupt and can then apply for auto finance again.

Representative Example

Cash Price£16,551.73
Term49 months
Amount of credit£14,972.95
Fixed Interest4.99%
Representative APR10.62%
Total Charge for credit£3,449.86
Option fee (included in total charge for credit)£399.00
Total Amount Payable (Incl. Deposit)£20,001.59

We are a credit broker and a lender. We can introduce you to a limited number of lenders and their finance products. We will provide details of products available, but no advice or recommendation will be made. You must decide whether the finance product is right for you. We do not charge you a fee for our services. Lenders may pay commission to us (either a fixed fee or a fixed percentage of the amount you borrow) for introducing you to them, this may be calculated in reference to a variable factor such as (but not limited to) the vehicle age, your credit score and the amount you are borrowing. Different lenders may pay different commissions for such introductions.

Bankruptcy Explained

So what is bankruptcy exactly? 

When you can’t afford debt payments, one of the ways to deal with it can be declaring bankruptcy. You need to apply on the government’s website to start the process.

Once, you’re officially bankrupt creditors can’t require payment. The downside is that your belongings with be seized and sold so that debt payments can be made. You’ll need to pay £680 court fees to be bankrupt. 

You can also be declared bankrupt by your creditors if they take you to court, but you need to owe at least £5000 for that to happen. 

Implications of Bankruptcy 

Unfortunately, there are serious consequences when you are bankrupt in addition to your possessions being seized. We’ll outline some of them below:

  • Credit Score

    Bankruptcy listed on your credit report will last for 6 years. Your credit score will take a plunge and will take considerable time to repair. This will make car financing more difficult, as lenders need to accept a higher risk to approve your application. 

  • Higher deposit and interest rates

    When you’re applying for car finance, lenders will ask for a higher deposit to minimize the risk. It is a good idea to start saving even before being discharged from bankruptcy to cover the payment. Additionally, interest rates will also go up due to a bad credit score. 

  • Can’t apply for finance

    Due to bankruptcy staying active for a year, you won’t be able to apply for credit during this time. 

Tip: to rebuild your credit score, register on an electoral roll and keep paying off other debs (such as student or mortgage) to show that you’re keeping on top of the finances. 

Can I keep my car on finance if I go bankrupt? 

Before declaring bankruptcy, you should contact your finance provider to discuss the situation. Some lenders have a clause in the agreement stating that when you are bankrupt, the car goes right back to them.

In other cases, you can keep making monthly payments if allowed by the receiver and finance company. 

In which cases can I keep the car on finance? 

What happens if I own a car?

If the finance is paid off and you’ve been declared bankrupt after this, the receiver can sell your car if you don’t fall into one of the categories above.

In addition to this, the car’s second-hand worth needs to be equal to £1000 or less to keep it. If the car is worth more, the receiver will sell it and give you a £1000 to buy a cheaper one. 

Getting Car Finance After Bankruptcy

Before applying straight away after the bankruptcy is discharged, the better course of action is to wait. The longer the time passes, the better the chances you’ll be approved for car finance.

In the meantime, you can focus on building your credit score back up. When applying, focus on lenders that specialize in bad and poor credit finance, as mainstream lenders may be wary of lending if you’ve had a bankruptcy in the past. 

Tip: don’t apply to many places as rejections can make your credit score go down. Select your car finance lenders carefully.