Bankruptcy and Car Finance

Declaring bankruptcy is a painful decision to make, and one that many people are forced into. Bankruptcy involves clearing your debts by releasing your assets to creditors. This can either be your own decision, or court-ordered if you owe more than £5000 to a single creditor.

Bankruptcy normally ends after a year, known as ‘discharge’, giving you a fresh start with nothing left to pay. Being bankrupt affects existing car finance, and makes it more difficult to get a new agreement from lenders. However, it’s far from impossible if you understand your options.

Can you Finance a Car While Bankrupt?

When you are bankrupt, applying for a car finance agreement will most often result in you being turned down by the lender. You will also struggle to borrow large sums of money that may be needed for the initial deposit for the car.

But, just like if you have poor credit, there is still a chance a lender will have an agreement available. The Match Me Finance Calculator can help you find trusted lenders and thousands of vehicles that will be perfect for you. It also NEVER affects your credit score, so you can find perfect cars and lenders in just a few clicks without harming your credit.

Again, there is no guarantee that you’ll find an agreement until after your bankruptcy ends, but it’s worthing looking if you need a car to help you get from A to B during your bankruptcy.

If you are currently bankrupt, it’s very unlikely that you will be able to get a car on finance. Lenders generally won’t offer car finance for bankrupt people while your case is with a receiver.

It’s also worth noting that it’s highly unlikely that you’ll be able to borrow any large sums of money while bankrupt – you can get a loan while bankrupt, but if you want to borrow any amount over £500 you’ll have to make the lender aware of your bankruptcy and you’ll usually, unfortunately, be declined.

However, once you’ve been discharged from your bankruptcy, the good news is that you can start to rebuild your credit rating and apply.”

What Happens to your Car if you Declare Bankruptcy?

No matter whether it is financed or fully paid for, your car is considered an asset and can be taken away from you when you declare bankruptcy. Being unable to make your monthly payments will also be counted towards your debt if the car is under finance.

However, if your car is deemed essential for your household, and is the only way for you to get to work or is needed for the school run, you will be able to keep it. If you are able to make those journeys via public transport, it will be difficult to keep your car.

Financing a Car After Bankruptcy

Once your 12 months of bankruptcy ends, it becomes easier to finance a car. There will be no longer a legal limit on how much you can borrow, but you will still find it hard to apply for credit and your interest rates will likely be higher.

Your credit score is what lenders look at when you apply for a finance agreement, and it will show any financial difficulties you’ve had. Bankruptcy remains on your credit report for 6 years after discharge, so will be a factor for a long time.

It’s recommended to wait for 12 months before applying for credit again (if you are able) so that lenders can see that you’ve become financially stable. There also measures you can take to improve your credit score. Making regular car finance payments will improve it over time when you do finance a car.

You may also be limited to certain types of car finance. Whatever you find, provided you make your payments on time and keep the car in good condition, you should have no further issues.

What Car should I Finance After Bankruptcy?

When your lending options are more limited and interest rates are high, the car you choose to finance is very important.

The main factor is what your financial situation is like after bankruptcy. If you have retained a good income, and have some savings set aside, you will have access to a wider range of cars. However, you need to consider more than just the price of the car.

Choosing a cheaper car will result in lower monthly payments, making it easier to manage long term. Small hatchbacks like the Hyundai i10 (which we talked about in our best city cars blog!) is all the car you need for work and leisure. Cars like this are practical enough for families, and their small engines make them very economical, saving you money on fuel.

To save even more, you could look into financing an EV, either a fully electric car or a hybrid. These are fantastic cars, and the money you don’t have to spend on petrol or diesel can go a long way, but their overall price tends to be higher so may not be an option for some.

Small SUVs are solid choices for people who want a car that isn’t too big but have bigger families or need more space inside. They tend to be almost as economical as hatchbacks too, so can be the perfect choice.

You could also look into the used markets to save more money on your car. A car that is only a few years old will still be reliable, but not as expensive as a newer alternative.

Whatever car you choose after bankruptcy, make sure you are financially stable enough to make the payments over the next few years, or however long your agreement is for.

More about Car Finance

Being bankrupt is tough and affects you for a long time. If you need a car, financing a new or used model is the best way to help you get back on the road. To find the right one for you, use our Car Finance Calculator to find the perfect car and lender.