If you’ve declared bankruptcy and are trying to rebuild your credit through a fresh start program such as a bankruptcy car loan, you’ll probably be wondering why the interest rates are so high on this type of loan. It’s all about how risky the lender thinks you are in terms of paying back the loan.
Many lenders won’t even consider giving you a loan if they see a bankruptcy in your credit history. To them, it’s just too risky. They see your bankruptcy as an indication you’re more likely than other customers to default on the loan. These “risk-adverse” lenders are too worried they won’t get their money back.
Then there are lenders who take a more positive view of the bankruptcy on your credit history. They see you’re making a fresh start, trying to do better, and are willing to consider taking a chance you with a loan. But the big-picture data out there still says bankruptcy customers are more likely to default on loans than non-bankruptcy customers. In other words, you’re still viewed as a higher-risk customer, and that’s why the interest rates are higher on a bankruptcy car loan.
Higher interest rates are the price you pay for being a riskier kind of customer for a lender but can also be a life-saver when you need to finance a car purchase and many lenders won’t even give you the time of day.
Related post: Bankruptcy Fresh Start Program: The What And Why
At Day One Credit we are experts at finding the best possible bankruptcy car loans in order to help our customers purchase high-quality used cars. We are not lawyers, we do not give legal advice, and nothing we say should be taken as legal advice. Your first step in anything related to bankruptcy should always be seeking the advice and counsel of a qualified bankruptcy attorney.