Car Loans For Discharged Bankrupts
[Updated July 2018] In Australia the 2017-18 financial year, there were over 16,000 bankruptcies filed in Australia.
If you have faced the stress of bankruptcy, you are not alone. At Positive Lending Solutions, we recognise that your financial situation isn’t always 100% under your control. As experts in bad credit applications, we’ve put together some of the things we’ve learnt to help you turn your bankruptcy into an opportunity:
Don’t apply while you are bankrupt - wait until you are discharged!
If you find yourself unable to pay your debts, bankruptcy can be an avenue for you to make a fresh start. Bankruptcy means that:
- you are released from the responsibility of all existing debts.
- A trustee will be appointed to manage your financial affairs
- You will be discharged from bankruptcy 3 years from the day that you file your Statement of Affairs with the Official Receiver (AFSA).
- The bankruptcy will appear on your credit profile for 5 years from the filing date. it will also appear on the National Personal Insolvency Index.
- If you have more than $7,500 equity in your car you will probably lose it while the trustee administers your estate.
You don’t have to wait for 5 years for your credit profile clears to take out a car loan. In fact, a bad credit car loan could significantly help towards improving your credit score.
Take steps to improve your finances NOW
Look at the bankruptcy as an opportunity for a new beginning. At the end of the bankruptcy, you will have no debts restricting you.
By paying your bills on time and saving a deposit, you will increase your chances of being approved a car loan. If you have some equity to put towards the loan amount, such as a cash amount or a trade-in, this will make your loan application more attractive.
Don’t worry if you can’t get a deposit together, the most important thing is to demonstrate a responsible banking record. A small amount of money saved regularly shows that you are committed to ensuring a secure future.
If defaults have been listed on your credit profile, but the company lodging the default has not followed the correct procedures, you may be able to have these removed if you independent legal advice. Get a free initial consult with a lawyer to see if this might apply to you, or try a Legal Aid Office for free advice.
Another way to improve the perceived risk to the lender is to maintain stable employment and residence. If you are renting, aim for a 12 month renewable lease.
Something to avoid is taking out a small loan or a payday loan. In the first 12 months after you are discharged from bankruptcy, you should set a budget and make sure that you save a little in case you forget about a bill that falls due.
This will help your credit profile, preventing the necessity of small loans from non-traditional lenders which ultimately count against you.
Get the right advice
You may seek the advice of a financial planner in making your new start.
Getting a car loan that you can afford can help you to quickly rebuild your credit. Speaking to a finance broker at Positive Lending Solutions will help you to work out what you can afford. Our brokers have access to lenders who can offer you a second chance and help you start the pathway to a brighter future.
Your broker can advise you as to which lenders would be likely to finance a bad credit car loan taking into account your financial history. Because we are not affiliated with any specific lender, our brokers are able to give impartial advice.
A finance broker will also guide you through the application process. After collecting all the required information, they will use their knowledge to present it to the lender in the most favourable light.
This study shows that over a 3 year period, individuals who took out a bad credit car loan showed an improvement in their credit rating of 62.5% greater than those who did not take out a car loan for bad credit.
Improving your credit score can have a huge impact on your future. The benefits will include greater access to credit and an improved economic situation.
Find out what you can really afford to spend on a car before you start shopping
Choose a car that you can realistically afford! Using a car loan repayment calculator you can get an idea of how much you can afford to borrow based on how much you can put towards car loan repayments. A second-hand vehicle that suits your needs will show the lender that you are serious about a responsible financial future.
Your finance broker will ensure that the obligations you take on at this crucial time are within your means, and directed towards achieving your goals
If you can make regular, on-time payments on a car loan, after 12 months you should consider refinancing to get a better deal. Your broker will be able to give you advice on when and how this should be done.
Be prepared to pay a high interest rate
Interest rates are directly linked to to the probability that you will be able to repay your loan. As a discharged bankrupt, a lender will charge you a high interest rate to mitigate their loss if you do default. This is because you will be accepted as a ‘bad credit ’or ‘sub-prime’ consumer.
Luckily, it’s not all doom and gloom. After 12 months of demonstrated payments, your credit profile will look significantly more attractive. Demonstrated responsible borrowing will change how lenders perceive you as a consumer.
This is your opportunity to refinance and enter the prime lending market. you will once again have access to competitive market rates.
If you’ve been through a bankruptcy and you are ready to re-establish your credit rating with an affordable car loan, give one of our experienced brokers a call to see how we can help. Embrace your new future today!