Can I get car finance after bankruptcy?

Roman Danaev

25 July 2021

If your bankruptcy was finished at least 12 months ago, and you’re paying your current bills right on time, then yes, you can definitely apply for any type of financial help, such as car finance.

Bankruptcy is a legal status a person can take if they become unable to pay the debts they owe. It may cause serious problems if they try to get any type of finance, including car finance.

As soon as you become bankrupt, your details become available for any lender to see on the IIR (Individual Insolvency Register). Usually, you possess this status for one year, and after it’s over, you’ll receive a letter stating you’re a “discharged bankrupt” now.

What happens to your car when you’re declared bankrupt?

In the UK, if you have your own car or you’re currently financing one, a decision will be made as to whether your vehicle is essential to you or your family. If the official receiver handling your bankruptcy decides that you or a member of your household needs the car for work, education, or a reason related to disabilities, you might be allowed to keep it.

Please keep in mind that “essential” does not equal “convenient.” You will need a car to get to work if you live far enough from any public transportation lines. But if a bus stop is right behind the corner, or booking a taxi ride is easy in your neighbourhood, you better not expect that you’ll be allowed to keep your vehicle once you’re bankrupt.

How does bankruptcy affect your credit report?

There are different levels of bankruptcy you can file for, which can have serious consequences for your credit report for up to ten years. Declaring yourself bankrupt will significantly lower your credit score, and that’s what lenders will base on when determining whether you qualify for finance.

Nevertheless, even with a damaged rating, you should not abandon the idea of getting a car loan. Interestingly enough, credit providers often offer bad credit car finance for bankrupt people, as it may help those with a low credit score rebuild their rating. Taking responsibility to handle your new credit adequately will help gradually improve your score.

Here are some other ways that could help you improve your bad credit history:

  • Using a credit card regularly and paying it back on time every month
  • Making your payments and paying bills on time
  • Avoiding making too many loan applications in a short period of time
  • Fixing any mistakes on your credit file

How long does bankruptcy affect your credit score?

The general time limit for bankruptcy is 6 years, however, it can be longer or shorter depending on which type of bankruptcy you filed for.

After six years, if you can show that your bankruptcy occurred and was discharged or that you avoided reckless behaviour with money since then, it is removed from your credit report. For example, if you breach the terms of your bankruptcy order, it can be made to last up to 15 years.

However, in some cases, some lenders will ask if you have ever been bankrupt. If your bankruptcy is never discharged, it could stay on your credit report forever.

Can I buy a car while in bankruptcy?

If you’re bankrupt, purchasing a car is nearly impossible. Obviously, lenders understand the consequences of bankruptcy, so they will most likely not offer any bankrupt car finance for as long as you’re officially unable to pay the debts that you have.

You should remember that it’s not legal to get a loan in the amount of £500 or more without letting the lender know of your status. Besides, you must follow any other restrictions made by your receiver – otherwise, you may end up in court and have your discharge from bankruptcy suspended. Thus, your finances might remain under the receiver’s control for more than one year.

How soon after bankruptcy can I get a car loan?

Bankruptcy stays on your credit report for an average of 6 years, but as soon as you're discharged, a lot of restrictions are lifted. Now, you may take out a loan without informing your bank about bankruptcy. Before you can be discharged, there is a £500 limit on how much you can borrow without notifying the bank about bankruptcy.

So, you're no longer in debt? But your credit rating is probably destroyed, right? It won't be easy to apply for credit now.

In some cases, the amount of time that has passed since a bankruptcy may make it easier to obtain a car loan. For example, one year after declaring bankruptcy, you may have difficulty obtaining a loan, but several years later, that may not be the case.

After you apply for credit and get rejected, it can make it more difficult to be approved for future credit applications. If you're worried about being accepted, it would be safer to ask a professional for advice. Carplus can help find the best car finance deal on the market with the best terms for your situation.

If you have gone bankrupt, the chances are that any lender will think twice before accepting you for any kind of finance because your failure shows a high risk of not being able to pay. That means if there is a chance you might be accepted, the interest rate will most likely be very high.

Can you get car finance after being bankrupt?

After your bankruptcy has been discharged, you can again apply for a car finance loan. As mentioned before, lenders often find ways to provide you with a car loan, despite your financial difficulties in the past. However, be prepared that your interest rates might be higher due to the higher level of risk the lender is taking on. Lenders are going to charge interest rates that are higher because they see a greater risk in you than the average customer. Nonetheless, people who used to be bankrupt can still get car finance.

Once discharged from bankruptcy, the “black mark” will stay in your credit history for 6 more years (at least it’s true for the UK), and lenders will have access to your file if you apply for car finance. Some of them will certainly become concerned that you might not be able to make your payments on time, and your application will be rejected.

Car finance providers, like the ones we work with, can provide financing for those with bad credit history including bankruptcy. Even if you’ve gone bankrupt or undergone some other major expense, there are some chances that you'll be approved for car finance. We have helped thousands of people to get back on their feet and get behind the wheel of a new car.

Some lending companies offer stricter monthly repayment policies to those who have declared bankruptcy. This additional stringency could be a good thing if you are in a position where you need to pay off debt as quickly as possible, or it could present a bad opportunity if your financial situation has changed and you now want to take on more debt that can be paid off over time. Some lenders will require you to install a black box in your vehicle that can be used to disable it if you miss payments.

With a bad credit rating, you may also be asked to put down a higher initial deposit. This will also increase your chances of getting finance since a high initial deposit reduces the total loan amount.

How can I improve my credit score?

Here are some other ways that could help you improve your bad credit history:

  • Make sure your credit report shows your bankruptcy as discharged
  • Using a credit card regularly and paying it back on time every month
  • Making your payments and paying bills on time
  • Avoiding making too many loan application
  • Save for as much as you can for a deposit. The more you save, the less you will have to borrow and that would be a lot less riskier to the lender
  • Talk to someone with car finance experience. If you're not sure who accepts people like you or need a better deal, it's best to consult someone who deals with these requests often.