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Is It Still Possible to Get a Car Loan Post-bankruptcy?

May 9, 2022 | Car Loans

Today’s day and age sees debt loads at incredibly high rates. The average Canadian has around $22,000 in debt! It’s no wonder that bankruptcy has become a deeply misunderstood topic when it comes to Canadian personal finance. Both myths and confusion surrounding bankruptcy in Canada have lingered partially due to the rarity of bankruptcy in the first place. 

However, there may be a shift. Over 70% of the Canadian Association of Insolvency and Restructuring Professionals’ members predict that bankruptcy filings will only increase over the next five years.

Bankruptcy Is Not the End

It is vital to bear in mind that when people experience bankruptcy, that does not mean they’re consigned to a lifetime of financial ruin. Whether it’s a possible future course of action or a person is actively going through bankruptcy now, it’s a good thing to remember. In truth, bankruptcy, by its very design, is actually meant to help give someone in dire financial strain a start over.

The chance to start over is basically a fresh start; for a lot of Canadians, that reset involves a car loan post-bankruptcy.

Post-Bankruptcy Car Loans: Are They Possible

Bankruptcy is something that will remain on a credit report for six years. However, that timespan doesn’t have to pass before a new credit application is taken on. Within that timeframe, it’s actually necessary for credit to be rebuilt. That’s best done by applying for and paying back some kind of credit on time. Yes, that includes taking on loans.

That said, approval for a car loan during bankruptcy is unlikely without securing the loan by using some kind of significant asset. It’s possible to get approved for a car loan after the conclusion of bankruptcy proceedings.

Post-Bankruptcy Car Loans: How Can Potential Lenders Be Found?

Getting ideal car loan rates post-bankruptcy can be rather complex. If a bank gives a person a loan, it might be at an unreasonably high interest rate. If they apply for a car loan at a dealership, they might get a good interest rate but may end up having to pay higher interest rates than usual.

Many dealers will work hand-in-hand with people to secure financing, especially if they have a steady income. However, they may only lend out enough money to purchase a $10,000 car instead of one that’s valued somewhere in the $50,000 range.

Alternatively, instead of taking on in-house financing from a car dealership, a person can work with a lending company that specializes in helping people who are in the process of bouncing back from bankruptcy. Those companies will look at more than just the credit score. Instead, they will do a full-on deep dive into the person’s financial situation, weighting recent payment history, income, down payment, and even the reasons for bankruptcy. 

Financing will then be offered on the basis of all that collective data.

Getting A Car Loan Post-Bankruptcy

When there’s a bankruptcy on a credit report and a car loan is imminent, there are steps that can be taken to raise the chances of succeeding. Some of the most important ones are listed below:

1. Compare Several Cars

After a price range has been identified and set, vehicle options need to be sought according to what’s practical for the person’s lifestyle. Buying a used car will probably be easier overall as opposed to purchasing a brand new one.

2. Get Pre-approved After Shopping Around For Lenders

The best place to start looking for a lender is the local credit union or bank. In most cases, bad credit car loans are available. Before going to any dealer, it would be helpful to apply to several lenders and then gain financing preapproval. At that rate, an approval will already be secured, which means a loan limit will be determined prior to dealing with salespeople.

3. Review the Paperwork Before Signing

The dealer’s lending specialist or the finance manager for the lender should be able to walk a person through the paperwork. Reviewing everything before signing on the dotted line is crucial to make sure there’s a full understanding of what is being signed in the first place.

4. Set A Budget & Save For A Down Payment

According to financial experts, it’s vital not to spend over 10% of one’s budget on costs related to transportation. It’s possible to estimate the total cost of a car loan with an online calculator that takes into account the amount to be borrowed alongside the interest rate. 

A down payment will help in getting better terms when the car is financed. Experts recommend putting down at least 10% as a deposit to get the best interest rates and prevent the car from “going underwater,” which essentially means incurring a total cost that is above the car’s present value.

5. Take A Close Look At the Credit

Bankruptcy proceedings have some type of impact on a person’s credit score. It’s important to ensure the credit report does not contain errors that can lower the score even more. 

Tips On Increasing the Likelihood of Car Loan Approval Post-Bankruptcy

As previously mentioned, it’s essential to work on one’s credit score when looking to get approved for a car loan. Great steps to take include, but are not limited to:

  • Applying for a secured credit card
  • Keeping the credit utilization rate to under 35% of the overall credit limit
  • Not applying for multiple credit sources all at once
  • Not missing a payment on utility bills
  • Using the credit card regularly, paired with paying the balance off diligently each month

Getting a decent down payment for the car loan overall should be a priority. When there’s a large down payment at hand, potential lenders can see there’s definitely space in the budget for car payments and savings. That will give them extra confidence in actually issuing a loan in the first place.


Contrary to popular opinion, bankruptcy is not the end of the world. If anything, it’s a chance to start over; for many, that includes a car loan. It’s possible to get a car loan post-bankruptcy, though expectations should be managed in terms of just how much will be released.

Need assistance with bad credit car loans? Reach out to Get Approved Canada today! We’re your Canadian loan specialists from coast to coast.

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