Contrary to popular belief, it is possible to obtain a personal loan after you have been declared bankrupt.
It is not going to be an easy process by any stretch of the imagination, but it certainly is possible. On this page, we are going to go through everything that you need to know about obtaining a personal loan after bankruptcy.
The Type of Bankruptcy Will Matter
As you may well know, there are two types of bankruptcy:
- Chapter 7: with this type of bankruptcy, nearly all of your debts will be wiped out. Some of your assets may end up being sold during this process. This type of bankruptcy will be listed on your credit profile for 10-years.
- Chapter 13: your debts will not be wiped out. Instead, you will enter a debt-restructuring plan where you will be paying back your debts over a few years. This bankruptcy will likely not impact your score after 7-years, assuming you meet the debt obligations.
According to David Winfield of SimpleFastLoans, “If you have a bankruptcy listed on your credit report, it becomes more difficult to obtain a personal loan. Even if you have worked incredibly hard to boost your credit score in other ways, the odds are still going to be stacked against you”.
You Will Not Be Able To Apply for a Personal Loan During Bankruptcy
If you have not completed the bankruptcy process, you will not be able to apply for a loan at all. No lender will approve you. How long the process takes will be dependent on the case, but expect it to take a couple of months.
You Should Wait a Year Before Applying for a Loan
While some people have reported success applying for a personal loan just a few months after bankruptcy, you do need to be aware that these are outlier cases. Your chances of being approved are minimal and, if you do, these cases tend to involve drastically high-interest rates.
Most people will not be able to see semi-decent loan offers come in from reputable lenders until at least a year after declaring bankruptcy. By this point, they should have been able to build their credit score to the point where some offers should come in. If you had an awful credit score before your bankruptcy, then you may need to wait an extra year or two.
Types of Financing Available
It is important to remember that obtaining a personal loan before the bankruptcy has been discharged from your credit report will attract high-interest rates. Even if you have worked hard to improve your credit score, as long as that bankruptcy remains on your credit report, you will find it difficult to obtain a competitive interest rate on your loans.
Luckily, some companies offer credit-builder unsecured loans that allow you to rebuild your credit score at a higher than the normal interest rate, but not so high that the loan becomes unaffordable.
While it isn’t technically a personal loan, some people have found a decent amount of success applying for a credit card shortly after bankruptcy. The credit limit that you have is never going to be all that high until you have demonstrated that you can meet your repayments but, to be honest with you, it is going to be more than enough to deal with a couple of expenses here and there, assuming you pay it back. A lot of people after bankruptcy have seen some sort of success after bankruptcy with repaying their credit card. This will have an impact on your credit score.
You may also find that you can apply for a secured loan. In some cases, this may be a title loan (i.e. against your vehicle), and in others, you can remortgage your property. Although, do bear in mind that in both cases, if you fail to repay the money you have borrowed, you are at risk of losing your property. This should be one of your last resorts.
If all else fails, then you may also be able to ask somebody to co-sign a loan for you. This can be a friend or family member. However, we cannot stress how important it is that your co-signer trusts that you will pay the loan back. After all, if you fail to make your repayments on the loan, the co-signer will be the one that is “on the hook” for the repayments. This can destroy your relationships.
If you can, you should avoid payday loans and similar high-interest rate loans. You should also try to avoid loans that advertise “no credit check.” While the chances of you being approved for one of these loans is exceedingly high, the high-interest rate means that you are just digging yourself into a financial hole. If you were dealing with financial issues, to begin with, applying for a loan like this is just making things worse.
Applying for a personal loan while you have a bankruptcy on your credit profile isn’t going to be easy. Most lenders will turn you away and those that do accept you will have higher interest rates. However, things will become a lot easier the longer you wait after a bankruptcy, particularly if you have been improving your credit score in other ways. However, you should never borrow money for the sake of borrowing money. If you apply for a personal loan, make sure that you need the money.