Getting Loans After Consumer Bankruptcy
Once you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, can you apply and be approved for loans again? This is a common concern among individuals who file for consumer bankruptcy, and it is important to emphasize that filing for bankruptcy and receiving a discharge does not make it impossible to obtain credit again. According to a recent article in Consumer Affairs, having a bankruptcy discharge on your credit report could mean that a loan could end up costing a little bit more in terms of the interest rate, but a bankruptcy declaration does not mean that you will be unable to obtain credit.
The article cites a recent study conducted by Lending Tree, which provides important data to consumers who are considering bankruptcy in Oak Park.
Bankruptcy Might Add Costs But Will Not Prevent You from Getting a Loan
There are many misconceptions about consumer bankruptcy. As the article explains, while bankruptcy can have some negative consequences, “it doesn’t end a consumer’s ability to borrow money; it just adds to the cost.” What does that mean? In brief, if you filed for Chapter 7 bankruptcy but otherwise do not have any major issues on your credit report, it is likely that you will qualify for a loan but at a higher interest rate than someone who has not recently filed for bankruptcy.
According to Lending Tree, more than 40% of consumers who filed for bankruptcy and had a discharge in the last year have a credit score of at least 640, and many of those individuals actually have higher credit. For those who filed for bankruptcy and received a discharge approximately two years ago, about 65% of them have a credit score of at least 640. That percentage increases as time goes by since the bankruptcy discharge. A large majority of consumers who received a bankruptcy discharge in the last seven years—the amount of time that a bankruptcy discharge remains on your credit report—have a credit score that is at least 640.
Why is that credit score of 640 so important? Lending Tree explains that this credit score “is high enough to qualify for many loans, but it is also low enough to make those loans more costly because of a higher interest rate.” As you continue to make on-time payments after bankruptcy however, you could be eligible for lower interest rates. In other words, as your credit score improves, your ability to obtain lower-interest loans, even with a history of bankruptcy, becomes more likely.
Calculating the Costs of Interest on Loans After Personal Bankruptcy
How much of a difference are we talking about in terms of higher interest rates? Let’s begin with auto loans. On average, one year after a bankruptcy discharge, the additional cost due to the interest rate on the loan is $2,171. If a consumer waits two years after the bankruptcy discharge, the average additional cost falls significantly to $799.
What about mortgages? The additional costs of higher interest rates due to bankruptcy when you apply for a mortgage are not very significant, especially when compared with other loans. The Lending Tree study reported that “a three-year-old bankruptcy typically results in an interest rate that is only 0.19 percent higher than a borrower without a bankruptcy.”
Contact an Oak Park Bankruptcy Attorney
Do you have questions about filing for bankruptcy and getting a loan? An Oak Park consumer bankruptcy lawyer can help. Contact the Emerson Law Firm today.
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