I often say to my clients that have been forced into the unfortunate position of bankruptcy, that they don’t start from the bottom again, but they have to begin from lower than the bottom to rebuild their credit rating.
An ex-bankrupt’s first auto loan after a bankruptcy has been discharged, will often leave them with minimal options, which usually means the vehicle finance offer may not be very favourable to them and quite often will I hear the frustration from the ex-bankrupts perspective.
Discharged Bankrupt Car Loans Guidelines
Below is a list of general guidelines that the automotive financier may request on application for a first vehicle loan after a bankruptcy has been discharged.
(These are guidelines and are not ‘set in stone’ and may be different dependent on the individual application.)
- Bankruptcy discharged for a minimum of 12 months
- Sufficient income from employment sources (i.e. 100% of income sourced from Pension or Centrelink only will not be sufficient)
- Good banking conduct for a minimum of 6 months (no Direct Debit dishonours or overdrawn amounts shown on bank statements)
- Stable employment and residence
- Vehicle satisfactory to lender (age of vehicle will be important)
- Vendor Satisfactory to lender (quite often licenced dealers only)
- Deposit may be required, but 100% lends are still available
- If any other loans or credit cards currently active, good conduct for a minimum of 6 months
- Satisfactory rental or mortgage reference
What kind of interest rates to expect
The most common objection from an ex-bankrupt is the interest rates second chance lenders may impose. The lender will price their interest rates based on risk analysis and their own internal statistics, so the interest rates can seem very daunting and are often much higher than a credit card interest rate.
Vehicle loans are a secured loan, so the lender has some fall back if the loan was to go into default, allowing them to repossess the car after a certain period of defaulted repayments, which makes the lender not completely exposed to the full amount borrowed, like a credit card or an unsecured personal loan.
This can actually make auto financing a great option for an ex-bankrupt to rebuild their credit rating, as the risk is lower for the lender than an unsecured option making the chance of approval higher.
Although the first car loan most likely will not be a great deal, once that hurdle is jumped and they have proven themselves again, a whole range of other options will be available moving forward, giving them a better position to negotiate a better deal.