Bankruptcy and Car Finance: What You Need to Know

Declaring bankruptcy is a significant financial decision that many individuals face. It involves clearing debts by releasing assets to creditors, either voluntarily or through a court order if you owe more than £5,000 to a single creditor. While bankruptcy can provide a fresh financial start after 12 months (known as a ‘discharge’), it impacts existing car finance agreements and makes securing new car finance more challenging. However, with the right knowledge and tools, financing a car after bankruptcy is still possible.

Can You Finance a Car While Bankrupt?

While you are bankrupt, obtaining car finance is extremely difficult. Most lenders will decline applications from individuals undergoing bankruptcy, and securing a loan for a car deposit will also be challenging. However, like those with poor credit, some lenders may still consider offering an agreement under specific conditions.

The Match Me Finance Calculator can help you explore your options by connecting you with trusted lenders and thousands of vehicles. Importantly, using this tool does not impact your credit score, allowing you to find potential finance solutions risk-free.

If you are currently bankrupt, the reality is that most lenders will not approve car finance applications until your bankruptcy case is resolved. Additionally, borrowing over £500 requires lenders to be informed of your bankruptcy status, significantly reducing your chances of approval.

However, once discharged, you can start rebuilding your credit score and improving your eligibility for car finance.

What Happens to Your Car If You Declare Bankruptcy?

Regardless of whether your car is fully owned or under finance, it is considered an asset and may be repossessed when you declare bankruptcy. If you are unable to make your monthly payments on a financed vehicle, it will be included in your overall debt.

However, you may be allowed to keep your car if it is deemed essential for daily life, such as commuting to work or taking children to school. If suitable public transport alternatives are available, retaining your car may be more difficult.

Financing a Car After Bankruptcy

Once your bankruptcy period ends (typically after 12 months), securing car finance becomes easier. There are no longer legal borrowing restrictions, but you may still find it challenging to access credit, and any agreements you qualify for will likely come with higher interest rates.

Lenders evaluate your credit score when assessing finance applications, and bankruptcy remains on your credit report for six years after discharge. While this will affect your borrowing options, you can take steps to improve your credit score, such as:

• Waiting at least 12 months before applying for new credit (if possible) to demonstrate financial stability.

• Making regular and timely payments on new finance agreements.

• Managing other financial commitments responsibly.

Although your options may be limited, as long as you make payments on time and maintain the car properly, you should have no further issues.

Choosing the Right Car to Finance After Bankruptcy

Given that your finance options may be limited and interest rates higher, selecting the right car is crucial.

Considerations When Choosing a Car:

• Financial Stability: Assess your income and savings to determine what you can afford comfortably.

• Monthly Payments: Opting for a lower-cost car results in more manageable monthly payments.

• Fuel Efficiency: Small hatchbacks, like the Hyundai i10, offer excellent fuel efficiency, reducing running costs.

• Electric Vehicles (EVs): While EVs and hybrids have higher upfront costs, they can save you money on fuel in the long run.

• Used Cars: A car that is a few years old is often more affordable while still offering reliability and modern features.

• SUVs for Families: If you need extra space, compact SUVs provide practicality without significantly higher costs.

Final Tips:

• Always ensure that you can afford the payments for the entire finance term.

• Research different financing options to find the best rates and terms.

• Use tools like the Car Finance Calculator to compare lenders and vehicles efficiently.

Get Back on the Road with Car Finance

Bankruptcy can be a challenging experience, but it doesn’t mean you can’t get back on the road. Financing a car after bankruptcy is possible with the right approach. Whether you’re looking for a new or used vehicle, our Car Finance Calculator can help match you with the best options tailored to your situation.

Start exploring your car finance options today and take the first step toward rebuilding your financial future.