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5 min read Published June 22, 2022

Writer: Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to manage their finances with clear, well-researched information that breaks down otherwise complex topics into manageable bites. The Bankrate promises

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You have money questions. Bankrate can help. Our experts have been helping you master your finances for more than four years. We are constantly striving to provide consumers with the expert advice and tools needed to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct policy, which means you can be confident that our content is honest and reliable. Our award-winning editors, reporters and editors produce honest and reliable content that will help you make the best financial decisions. The content created by our editorial staff is factual, objective, and not influenced by our advertisers. We’re open about how we are in a position to provide quality content, competitive rates, and helpful tools to our customers by explaining how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for the promotion of sponsored goods and services, or when you click on specific links on our website. This compensation could influence the manner, place and in what order items appear within listing categories, except where prohibited by law. We also offer mortgage, home equity and other products for home loans. Other factors, such as our own proprietary website rules and whether or not a product is offered in your area or at your self-selected credit score range can also impact the manner in which products are featured on this site. We strive to offer an array of offers, Bankrate does not include details about every financial or credit product or service. When you apply for Chapter 13 bankruptcy — sometimes referred to a repayment bankruptcy — your credit rating will suffer and it will remain on your credit profile up to seven years. In Chapter 13 bankruptcy, you enter a repayment plan that is approved by the court says Amy Lins, vice president of enterprise learning at , a nonprofit credit counseling agency located within Sugar Land, Texas. “This repayment is made over a period of 3 to five years, which means that you are not able to take on any additional debts,” says Lins. “However the court does recognize that life is unpredictable, and it may be necessary to purchase a vehicle before the completion in the Chapter 13 repayment plan.” It is possible to secure a car loan however the options are limited. How do you get a car loan while in Chapter 13 bankruptcy If you have the money to buy a car, you can simply purchase a vehicle for cash , without having to go through the court. But, you might need to modify your bankruptcy plan in order to get it changed, so consult your lawyer before making any decisions. If you require an auto loan when you’re still in your repayment plan, and prior to the discharge of bankruptcy, it is possible to do so. There are four steps you can do, as explained by Lins. 1. Create a budget that shows that you are able to pay for the car loan. You’ll have to prove that you are able to manage your debt repayment with additional financial commitments and responsibilities , as well as the cost of your car. “If the car purchase going to impact other elements of your repayment plan, consult with your lawyer to come up with an alternative repayment plan,” Lins says. Lins. 2. Find the lender who will accept Chapter 13 bankruptcies There are few lenders and car dealers that will cooperate with people with active bankruptcy but there certainly are some who will, according to Lins. “Your bankruptcy attorney may be able provide an inventory of dealers and lenders who are willing to work with you and you should inquire with your local credit union or bank.” Also, since your credit score is likely to suffer from bankruptcy, be prepared for higher interest rates, fees and terms that are less favorable. It is also necessary to locate an auto dealer that works with to get the car financing. Despite your options being slim, do your due diligence and look at rates and terms from a few different lenders. The offer must be submitted with the purchase price, the monthly payment and interest rate in writing and submitted for the courts, according to Lins. “Keep the price of your purchase as low as you can and wait to exit bankruptcy and rebuild your credit prior to purchasing a vehicle that is more costly,” she says. 3. You can file a motion with the court to buy the vehicle. In order to take over the car debt while you’re still paying back your debt, you’ll need to file a motion with the court to get it accepted. This entails bringing your order and presenting a convincing argument for why you’re required to purchase a vehicle and why you’ll need to obtain financing in order to purchase it. Perhaps your last car broke down, and the repair costs are so costly that it’s more beneficial to purchase a brand new vehicle. Perhaps you live in an area where public transit isn’t easily accessible. This is something your bankruptcy attorney can assist with. 4. Complete the purchase Once the purchase has been approved by the court, you are now able to apply for a car loan and purchase your vehicle. Purchase the car and start paying the loan off with your other obligations. How to get a car loan following Chapter 13 bankruptcy Once you complete your court-ordered debt repayment and get discharged, you don’t need to undergo the court process to obtain your approval. And, if you are able to, try to use your car until you are at least six months after discharge, according to Lins. Increase your credit score are a variety of ways to improve your credit score get credit, one of which is using secured credit cards. Obtaining a secured credit card means making a small down payment that acts as collateral. Your deposit becomes the credit line to credit cards. “Charging and paying back small amounts over time will aid in building an excellent credit score,” says Lins. You can also look at services that report on rent as well as other bills like cell phones and utility bills, as well as streaming services to help you create or maintain an punctual payment history, according to Lins. “These services typically have a modest fee, but they can be free,” she says. “Using your utility bills and rental payments to establish credit history could be a smart way to start the process of rebuilding.” Monitor your credit Besides rebuilding your credit score, you’ll want to keep tabs on it. This will let you know the progress you’re making and the kinds of changes that can be made. Also, monitoring your credit frequently can help you spot errors that could hurt your score down the line. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Many credit cards also offer an annual free look at your credit score. Look around for the right car within your budget. Making sure to shop for a car that’s within the range of what you can reasonably afford is a sure way to stay in good shape with your payment. This will help rebuild your credit score and ensure that you are on the right track. Examine your monthly expenses to determine how much of a car loan your budget will allow. As a general rule, car related costs should not exceed 20% of your budget per month. This is which includes the cost of fuel maintenance, insurance and gas. You may also want to establish a price target to purchase your car using the information on the internet via websites such as Edmunds and Kelley, which list new and used price of cars and estimates of insurance costs. Consider a down payment. The greater the amount, the less you’ll be liable on it in the near future. Examine your budget and determine what you can afford to stash away every month towards buying a vehicle. The ideal is to save as much as you can but ultimately it comes to your income as well as your expenses and obligations. Alternatives to taking out a new car loan If you’re not satisfied with the terms and rates provided for a car loan or you are having trouble getting approved altogether look into other options. You can look for a car that is less expensive. Even if your interest rate is very high, your total cost of payments and how much you owe each month will be less expensive. You can finance it later once your credit score has improved. When you have rebuilt your credit, you’ll likely qualify for a greater swath of car loans with lower interest rates, charges and better terms. Pay in cash entirely. The savings and the cash outright for a car means you won’t have to apply for a car loan in any way that will save you in interest fees. However, if you’re in need of an automobile sooner rather that later may have to get an . The bottom line is that getting the car loan during Chapter 13 bankruptcy is possible. Find a lender who is willing to deal on Chapter 13 bankruptcies and create a reasonable budget that allows you to make debt repayments as well as pay for the car loan. It is also essential to search around for the right car to fit your budget. After you are discharged in bankruptcy, options for financing are available. However, the primary goal is to repair your credit score by creating an established track record of making debt payments in time. “It’s an old saying however, time does heal all wounds, including wounds that affect your credit scores” Lins says. Lins. Learn more


Written by the writer who contributes to the project. Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing precise, well-studied information that break down complex subjects into bite-sized pieces.

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