How soon after bankruptcy can you get a car loan?
Sooner than most people think. Most lenders want you discharged first, and some lenders that specialize in rebuilding credit will finance you shortly after your discharge. A few will look at it before discharge, but that's harder and needs to be done openly.
| Where you are | What to expect |
|---|---|
| Before discharge | Possible with a few lenders. You must tell any lender you're bankrupt if you borrow more than $1,000. |
| Just discharged | Rebuilding-credit lenders will look at it. Bring your discharge certificate. |
| A year or more after discharge, with new credit paid on time | More lenders and lower rates. |
When will you be discharged?
For a first bankruptcy, you're usually discharged automatically 9 months after filing if you complete your two financial counselling sessions and don't owe surplus income. If you have surplus income to pay, it's 21 months. A second bankruptcy takes at least 24 months, or 36 if you owe surplus income. Your Licensed Insolvency Trustee can tell you your exact date.
Getting a car loan before you're discharged
While you're still bankrupt, you can't borrow more than $1,000 without telling the lender you're bankrupt. Not telling them is an offence. So if you need a vehicle before discharge, be upfront, talk to your trustee first, and expect fewer options and a higher rate. Often the better move is a cheaper vehicle now and a car loan after discharge.
What about the car you have now?
Saskatchewan's exemptions may let you keep a vehicle up to a set value, and a car that's financed is usually kept as long as you keep paying the loan. Ask your trustee how your own vehicle is treated before you file or trade it in.
How long bankruptcy stays on your credit report
A first bankruptcy usually stays on your Equifax and TransUnion reports for 6 years after you're discharged. A second one stays for 14 years. You don't need to wait that long to get a car loan, but the rate improves as the bankruptcy gets older and your new history grows.
What lenders look for after bankruptcy
- Your discharge certificate. Have a copy ready.
- Stable income. Lenders want to see the same job for a few months, or tax returns if you're self-employed.
- A payment that fits. With no other debts after bankruptcy, the car payment often fits better than people expect.
- Some new credit, if you have it. A secured credit card paid on time since discharge helps.
- A sensible vehicle and a down payment if you can manage one.
Use the car loan to rebuild
A car loan paid on time is one of the fastest ways to rebuild after bankruptcy, because most car lenders report to Equifax, TransUnion or both. After about a year of on-time payments, look at refinancing to a lower rate. Saskatchewan doesn't allow a penalty for paying a consumer loan off early.
Watch for these
- "Guaranteed approval" ads. No honest lender can guarantee approval before seeing your file.
- Upfront fees to apply or to "fix" your credit.
- Rates near the legal limit. The maximum on most consumer loans in Canada is 35% a year, including fees.
- Payments stretched over 84 months or more on an older vehicle.
How Brenden helps
Tell Brenden your discharge date (or expected date), your income and what you need the vehicle for. He'll tell you honestly whether to apply now or wait a few months, point you to lenders that work with bankruptcy, and make sure you get the lender's written disclosure of the rate and total cost before you sign.
Sources: discharge timing and the $1,000 rule from the Office of the Superintendent of Bankruptcy; credit report timelines from the Financial Consumer Agency of Canada.