A bankruptcy can leave you feeling financially vulnerable even though you have been given a fresh start. Your credit score has declined, and it may take a number of years before you can get a loan without a high interest rate. The reality is that you need credit to rebuild credit, and you can accomplish this by taking out a personal loan. Before you begin this process, make sure that you are prepared and know where you stand to avoid predatory lenders.
What is a Personal Loan?
A personal loan is unsecured, meaning that you are not required to provide collateral up front. While most lenders will not approve unsecured loans after bankruptcy, there are some who specialize in it. The key is finding one that is not predatory.
The Impact of Bankruptcy on Your Credit Score
Consumers can file for a Chapter 7 or a Chapter 13 bankruptcy. The impact each has on your credit will determine your chances of getting a loan afterward.
• Chapter 7 requires that you sell valuable assets to pay off debt. While this bankruptcy type offers a clean slate, it stays on your credit record for 10 years.
• Chapter 13 requires the reorganization of your finances. Your payment plan is determined by the court system, and all payments to creditors are handled by a trustee. You can take up to five years to pay off debt, and the bankruptcy will remain on your credit record for seven years.
Chapter 7 will allow you to apply for a loan before your bankruptcy is discharged because it completes in a matter of months. Chapter 13 will not ruin your credit, and it is possible that you could get a loan during the repayment period. This will allow you to start rebuilding your credit with a good payment history.
Preparing for Your Loan Application
In order to be approved for a post-bankruptcy loan, you will need to present yourself in the most positive way. This means completing the following steps:
• Obtain copies of your credit report. Get one from each of the three major reporting agencies, which are TransUnion, Experian and Equifax. Ensure that your bankruptcy information is being presented correctly in regard to debts and payments.
• Have proof of income. Aside from your credit score, lenders will want to see that you have enough income to repay a loan, reducing their risk. Make sure to include your spouse’s income and any funds you have coming in from a side business. Bring tax returns, your W-2, bank statements and your pay stubs.
• Be prepared to make your case. Even if your loan application is immediately denied, you may still have the option to explain what you are doing to improve your financial situation. Make a statement about what led you to file bankruptcy and what you have done since that time to improve how you use credit. This may not reverse the denial, but there is no harm in telling your story.
Other Options
If you are willing to take a loan that comes with strict terms and high interest rates, you can try the following:
• The bank. Having an established, long-term relationship with a bank may help your chances for getting a loan. Be advised that many banks do not issue loans to people who have been through a bankruptcy. Keep your expectations in check.
• Credit union. These institutions differ from banks because they serve the community interest and are not out to make a profit. They will sometimes be more willing to make a bad-credit loan. The downside is you will need to become a member and without any history, getting a loan will be challenging.
• Online lenders. You can fill out a form to obtain quotes and find a loan that best suits your needs and fits into your current budget.
Filing a bankruptcy does not mean your finances are hopeless. At DR Credit, the experienced staff will help you to find the best possible loan for your situation. Visit the website to explore your options.
