We have good news for those who thought buying a car after bankruptcy might be impossible. Some dealerships work with buyers who’ve had bankruptcy in the past.

The types of dealerships that work with bankruptcies

Not all dealerships are willing to work with customers who’ve gone through bankruptcy, but some specialize in financing for credit-challenged buyers. The two most common types of bankruptcy dealerships are:

1. Special finance dealerships:

These dealerships partner with subprime lenders and finance companies that focus on helping individuals with past credit issues, including bankruptcy. They consider factors beyond your credit score, such as income stability and down payment amount.

2. Buy Here Pay Here (BHPH) dealerships:

BHPH dealerships provide in-house financing, meaning they approve loans themselves. While they typically don’t check credit scores, they may require higher down payments and charge higher interest rates.

When can you buy a car after bankruptcy?

The timing of your car purchase depends on the type of bankruptcy you filed.

• Chapter 7 bankruptcy: Usually takes about four to six months to complete. Most lenders prefer that you wait until you receive your discharge notice, which typically comes 90 days after your creditors' meeting.

• Chapter 13 bankruptcy: Involves a three-to-five-year repayment plan. You’ll likely need court approval to finance a car during this period.

Pros and cons of buying a car after bankruptcy

Financing a car after bankruptcy comes with both benefits and challenges:

Advantages

• Provides reliable transportation for work and daily life

• Helps rebuild credit if payments are reported to credit bureaus

• Offers a fresh financial start with structured payments

Disadvantages

• Higher interest rates due to perceived lending risk

• Limited selection of vehicles, particularly at BHPH dealerships

How to improve your chances of getting approved

If you’ve experienced a bankruptcy and want to increase your chances of approval for auto financing, consider the following strategies:

• Save for a larger down payment: A substantial down payment reduces the loan amount and demonstrates financial responsibility

• Check your credit report: Verify there are no errors that could further impact your loan eligibility

• Consider a cosigner: Having a creditworthy cosigner can help you qualify for lower interest rates and better terms

• Compare financing companies: Credit unions and subprime lenders may offer better terms than traditional banks or dealerships

• Get preapproved: Knowing how much financing you qualify for in advance can help you negotiate a better deal

Finding a reputable bankruptcy dealership

Not all dealerships advertising bad credit financing have your best interests in mind. To ensure you're working with a reputable dealer, take the following steps:

• Read reviews: Look for customer feedback on Google, Yelp, and the Better Business Bureau (BBB) website

• Ask questions: A trustworthy dealership will be transparent about financing terms, fees, and interest rates

• Confirm credit reporting: If your goal is to rebuild credit, choose a dealership that reports on-time payments to the major credit bureaus

How to start the car-buying process

Financing a car after bankruptcy requires careful planning and research. Special finance companies, indirect lenders and BHPH dealers provide options.

If you need a car immediately, Credit Acceptance can connect you with one or more of the 15,000 dealerships in our network. We also allow credit-challenged buyers (even those with a previous bankruptcy) to get pre-qualified online.