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Can you get a car loan as a discharged bankrupt?
The short answer is YES it’s possible.
Around 10,000 people enter bankruptcy or a debt agreement (e.g. a Part IX agreement) in Australia every year.
That also means around 10,000 people will be EXITING their personal insolvency each year.
Understandably some of them will need car finance to help get back on their feet.
Some lenders cater to these borrowers with specialised car loans and processes.
They’ve made it easier than you might think to get car finance with bad credit or as a discharged bankrupt.
There are around a dozen of these lenders in Australia.
I’ve worked closely with many of them over the years.
Let’s take a look at what they’ll want to see before approving your application.
How to get a car loan if you’ve been bankrupt
Firstly, if you’re still going through bankruptcy it will be very difficult to get a car loan.
It’s generally a good idea to wait 12 months after you’ve been discharged.
This gives you time to start repairing your credit record.
With an improving credit score, your options for car finance will increase significantly.
Lenders will want to see that:
- You’re taking steps to improve your credit score and broader financial situation
- The issues that caused your bankruptcy have been resolved
- You have a stable source of regular income
- You are in stable living situation
- You have healthy spending habits
- You will be able to comfortably afford the car loan repayments
What documents will I need when applying for discharged bankrupt car loans?
Lenders will want to see that you’ve gotten yourself into a solid financial position since being discharged from bankruptcy.
They’ll usually ask to see:
- Up to six months of payslips
- Up to six months of bank statements
- Any credit card or other loan statements
- Evidence of any assets you own
If you're not able to provide the standard documentation (e.g you are self-employed), you could consider a low doc application.
Choosing a car loan when you’ve been bankrupt
Getting the right car loan is particularly important for people who have been bankrupt or in a Part IX debt agreement.
You certainly DO NOT want to get into more difficulty with debt.
Consider looking at the factors below when deciding on the best car finance option for you.
Secured car loans
You may find it easier to get approval for a car loan with a vehicle secured against it.
This kind of loan involves less risk for the lender as it can reclaim and sell the car if the borrower defaults.
Secured car loans usually come with lower interest rates.
Even if you’re financing a used car, you should be able to use the car as security.
The loan amount
The key is making sure that you can easily afford to repay the loan.
That means being careful not to borrow too much.
EVEN if you could afford to borrow more based on your income.
The loan term
A good way to keep your costs down is to choose a shorter loan term.
If you can afford higher repayments, a smart approach can be to keep the loan amount low BUT repay it in a shorter term.
Interest rate and fees
Naturally you’ll want to keep these as low as possible.
It’s worth exploring any options that will help keep costs down:
- Pay a deposit so you you’re borrowing less (lenders like borrowers with a lower loan-to-value ratio)
- Apply with the help of a trusted person who can be a guarantor for your loan
- Wait longer if needed before applying and being proactive about repairing your credit score
Balloon payment or not?
A balloon payment means you have lower regular repayments, with the option to make a large final payment to own the car outright.
There are other options at the end of the term too.
A balloon payment can make the loan more expensive overall but the flexibility is appealing for some borrowers.
Read more about balloon payment pros and cons.
Best discharged bankrupt car loans rate comparison
| Finance amount | Monthly repayment - 12% interest | Monthly repayment - 16% interest | Monthly repayment - 20% interest |
|---|---|---|---|
$10,000 | $222 | $243 | $265 |
$20,000 | $445 | $486 | $530 |
$30,000 | $667 | $730 | $795 |
$40,000 | $890 | $973 | $1060 |
$50,000 | $1,112 | $1,216 | $1,325 |
$60,000 | $1,335 | $1,459 | $1,590 |
$70,000 | $1,557 | $1,702 | $1,855 |
$80,000 | $1,780 | $1,945 | $2,120 |
$90,000 | $2,002 | $2,189 | $2,384 |
Consider refinancing your discharged bankrupt car loan
Another tip is to think BEYOND the first car loan you take out after being discharged from bankruptcy or a Part IX debt agreement.
Chances are, even if you shop around for the best deal you can get, a bad credit score will mean the initial interest rate will be quite high.
BUT after making the repayments on that loan for 12 months, your credit score will likely have improved.
That means you might be eligible to refinance the loan to a better rate.
Doing this could save you thousands over the full term of your car finance.
Ready to find your car loan?
You can use Money Matchmaker™ now to see if you can qualify for a car loan. There’s no obligation and no impact on your credit score.
We’ll compare the best loans we can find from our available pool of lenders. Loan quotes shown to you will be personalised based on a few simple questions, and you can see exactly how much you’ll pay with each lender.
Car Loans guides and resources
Where to next? Read our other car loan guides to understand more about your options for financing your next car.
Shopping around for the right loan can save you thousands of dollars in interest and fees.
Written by
Loans Expert
Shaun McGowan
Reviewed by
Editor
Sean Callery
AS FEATURED IN
*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $30,000 over 5 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.
