Car Finance if Bankrupt

If you're bankrupt or previously declared bankruptcy, we explore whether it's possible for you to get car finance.

Declaring bankruptcy, or being in the process of getting yourself out of bankruptcy, is an incredibly difficult time, and while it gives you the chance to reset and start again, there is a multitude of financial implications that come from the process.

When you declare bankruptcy, all your unsecured debts are wiped off, meaning that your creditors cannot recover the money owed or take any legal action against you.

However, while it may be a good option to start afresh, your credit history will be a mess, and it could lead to you being unable to apply for future loans. That means a mortgage, car finance and even credit cards may be unobtainable.

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Although that is a legitimate concern for anyone in that situation, hope is not lost, as there is still a chance that you could be approved for a loan, especially if you've begun to rebuild your credit.

Not only that, but some lenders work specifically to help those with bad credit, and while there's no guarantee, you may be able to find a lender willing to take a punt on you.

Can I get car finance while bankrupt?

If you are bankrupt, it's highly unlikely that you'll get approved for a car finance loan. Lenders will deem you too high risk to lend you money to buy a car, at least while your case is still with your receiver. 

It is still possible to apply for loans while bankrupt. However, if you wish to borrow anything over £500, you would need to declare that to a potential lender, who will almost certainly reject your application. 

Once you have been discharged from your bankruptcy, you can start rebuilding your credit and getting yourself into a better position to be approved. It may take some time, but you will eventually get to where you need to be.

What happens to your car if you declare bankruptcy?

If you are declared bankrupt and already own a car, you will be able to keep it if it is deemed essential to your circumstances and losing it would put you in a worse financial position.

Your receiver will make a judgement call based on whether it's essential for you to keep the car or whether you use it as an added luxury. It doesn't matter if you own or finance the car, the decision will be made the same way.

If you need a car to take your children to school because it's too far away for them to walk or get public transport, or need it for work purposes - again, because you can't get there any other way - you may be able to keep your car.


Can I get car finance after bankruptcy?

If you are out of bankruptcy and want to get a car on finance, you will be able to apply, but it may be difficult for you to be approved by a lender - at least until you've begun to rebuild your credit.

Not only that but even when your credit score does improve, you will likely be offered higher interest rates because lenders deem you as being high-risk, given the circumstances you were in before.

However, it's not all doom and gloom, and it shouldn't stop you from applying. Some lenders specialise in helping those with bad credit and will work with you to find out what is best for you.

Does bankruptcy affect my credit score?

Your credit score will get negatively impacted if you are made bankrupt or declare bankruptcy. Lenders will scrutinise your credit history to determine whether they can trust you to repay what they lend.

Your credit history on your report lasts for six years, so even when applying for finance down the line, lenders will still be able to see that you were bankrupt, and this could continue to affect you until it's wiped.

How do I improve my credit score?

There are plenty of simple ways to improve your credit score and show prospective lenders that you are in a position to borrow and make repayments on time.

Get a credit card

Applying for a credit card is a good start, as this will allow you to pay for things on your card and repay them, showing lenders that you can borrow and repay with no issues.

Aim to use the card to buy cheap things and pay it off straight away. That way, you'll know you can afford to pay it off, and it will show on your credit report for lenders.

Sign up for credit report apps and review and fix any errors

There are plenty of apps around these days that can show you your credit score and how you can improve it. Sign up and identify your score, plus any errors that may be showing that could be impacting your score further.

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Get on the electoral roll

Make sure you register yourself at the address you're living so you are on the electoral roll. This will help lenders identify you and your details quicker, while naturally improving your borrowing power. 

Don't apply for too many loans in quick succession

Loan applications appear on your credit report, so if you apply and get rejected for several, other lenders may see that as a potential red flag and disapprove you before even looking into your credit report in more depth. 

Don't miss payment dates or bills

Always keep track of when your bills are due and pay them. If you have built up some credit card debt, your bank will tell you when your minimum payment is due, so ensure you don't miss that too.

Try not to use more than 25% of your credit 

Some credit reports suggest that using more than 25% of your credit could affect your score. For example, if you have a credit card with £1,000 credit on it, avoid spending over £250 to reduce the chance of it impacting your score.


How long can bankruptcy last?

When you are declared bankrupt, you will generally be discharged 12 months after the first bankruptcy order was made.

Can I get 0% deposit car finance after bankruptcy?

It's difficult for many people to get 0% deposit car finance deals in ordinary circumstances, let alone after bankruptcy. However, it could be possible depending on the cost of the car and whether the dealer you are buying from has any deals at that time.