Understanding the Impact of Bankruptcy on Auto Financing Options

You can file for bankruptcy if you have too many debts to pay your bills. However, did you know how bankruptcy affects your vehicle purchase ability? When you apply for car financing in Alberta, it is common knowledge that credit history will determine how much loan you can get. With bad credit, you will have much more trouble getting approved for a loan than with good credit.

Statistics indicate that the insolvency rate in Canada increased by 33.7% from January 2022 to January 2023. Those who have filed for bankruptcy have a hard time securing auto loans. The assumption is that it is difficult to finance a car when bankrupt due to the limited options available. Lenders consider bankruptcy a red flag when considering whether to provide or deny auto financing options as part of their customer’s cases.

Can You Qualify for a Car Loan If You’re Bankrupt?

While it seems out of reach, you can still get an auto loan even if you’re insolvent. But it may take more effort.

Car finance sales businesses take credit history seriously. Generally, they prefer customers with a low debt-to-income ratio. If you default on loans — whether because of bankruptcy or any other reason — they think you won’t be able to finance your loan effectively.

If you’re facing or have completed filing the legal procedure, the situation should not cripple your finances forever. To qualify for an auto loan after bankruptcy, you must work harder on your credit score and savings for a down payment.

Bad Credit Car Loan: Your Best Option

The easiest way to qualify with pending or discharged bankruptcy is through bad credit car loans Alberta. Lenders specializing in these loans help people with credit issues, so you should be able to access auto financing even with a bankruptcy case on your credit report.

As you shop around for bad credit car loans, also consider the following:

• Go for a cheaper car and pay a larger upfront payment for better auto loan terms
• Look for a trusted partner (co-signer) with good credit
• Watch out for predatory lenders who tend to exploit customers going through financial difficulties

Car Buying After Bankruptcy: How Long is the Waiting List?

Most bad credit auto lenders suggest waiting for a year or longer before you can apply for a car loan. They will charge you higher interest, but you can use another lender to refinance once you improve your credit score.

The waiting time also depends on the type of bankruptcy discharge. After completing the legal procedure, whether business or personal, you’ll receive one of these bankruptcy discharges.

• Absolute discharge: An automatic discharge for most bankruptcies that releases you from all legal obligations to pay existing debts, except alimony, child support, and other court-ordered fines
• Suspended discharge: It comes with an absolute discharge later
• Conditional discharge: It requires you to fulfill specific requirements before you are given an absolute discharge
• Refused discharge: The court declares your bankruptcy ineffective, so you must work with your trustees to pay what you owe.

If your bankruptcy discharge is denied, you must disclose your status to creditors when borrowing a car worth more than $1,000. When the court refuses your discharge because of a fraud case, your trustees can confiscate your assets, and you won’t get debt relief (non-exempt assets).

With the rise of bankruptcy, people from different financial backgrounds are finding it difficult to find financing options for their automobiles. Since putting your credit in good standing may take time, bad credit car finance dealerships should be your go-to option.