Can I Get a Car Loan After Bankruptcy?

Getting Approved For a Car Loan Following a Bankruptcy Discharge: A Comprehensive Guide

‍It’s a common misconception that filing for bankruptcy is a financial death knell. While it does carry significant ramifications, it isn’t a ‘financial life’ sentence. One query that frequently comes up is, “Can I get a car loan after bankruptcy?”. The short answer is yes, but it involves navigating a few hurdles. This article will walk you through the process and offer tips on how to improve your chances of securing a car loan post-bankruptcy.

Understanding Bankruptcy

Bankruptcy is a legal tool that provides relief to individuals or businesses unable to repay their debts. It acts as a financial reset button, discharging eligible debts and offering a new beginning. However, it comes with its share of drawbacks, primarily affecting your credit score and borrowing abilities.

In 2020, bankruptcy accounted for 35% of all insolvency filings in Canada, while consumer proposals constituted the remaining 65%. This rise in bankruptcy filings largely results from the loss of income, exacerbated by COVID-19 related job losses.

Bankruptcy’s Impact

Bankruptcy, while providing a reprieve from crippling debt, also leaves a negative imprint on your credit history. Here, we examine the advantages and drawbacks of declaring bankruptcy:



  • A clean slate from debt
  • Cessation of debt collection calls
  • Protection against wage garnishments or court actions
  • Possibility of bankruptcy discharge within nine months




  • A negative mark on your credit report for at least six years
  • Liquidation of non-exempt assets to repay creditors
  • Public record of bankruptcy filings
  • Restricted access to loans and higher interest rates


Car Loans Post-Bankruptcy

Obtaining a car loan after bankruptcy isn’t impossible, albeit it’s more challenging. Traditional banks often shy away from lending to those with a bankruptcy record due to the perceived risk. However, alternative lenders and certain car dealerships offer financing options to individuals post-bankruptcy.

The catch is, these lenders are aware of the risks involved and hence, impose higher interest rates and additional fees. Additionally, they might require collateral, such as the car itself, as security for the loan.

Preparatory Steps before Applying for a Car Loan

Before you apply for a car loan, there are several steps you can undertake to improve your credit score and increase your likelihood of loan approval.

Rebuild Your Credit

Investing time in rebuilding your credit can significantly boost your chances of securing a car loan. Steps to gradually improve your credit score can be followed even if your current credit standing isn’t stellar.

Monitor Your Credit Score

Keeping a close eye on your credit score is crucial. Credit monitoring services offered by TransUnion and Equifax allow you to regularly check your credit report for any errors that might negatively impact your credit rating.

Use Credit Building Products

Several financial institutions, including KOHO, offer credit-building tools. Another strategy is to apply for a secured credit card, which requires your own money as collateral and thus, poses less risk for the lender.

Make Your Minimum Payments

Ensure you make all your monthly minimum payments on time to avoid sinking further into bad credit. You can set reminders on your payment due dates, cut down on unnecessary expenses, and resist the urge to increase your credit limit to manage this effectively.

Compare Car Loan Providers

Banks aren’t the only option for car loans. Numerous alternative lenders and car dealerships provide financing options for new cars. It’s prudent to compare interest rates and loan terms across lenders, and even negotiate if possible.

Save for a Bigger Down payment

Lenders usually prefer a substantial down payment, typically around 20%, to offset the risk associated with your poor credit score post-bankruptcy. A larger down payment not only reduces the lender’s risk but also increases your chances of securing a loan with more favourable interest rates.


While bankruptcy does pose certain financial challenges, they are not insurmountable. Even with higher interest rates and limited loan options, securing a car loan after bankruptcy is feasible. Plus, bankruptcy is not a permanent mark on your credit report. It remains for six years, during which period you can work towards rebuilding your credit. If you’re struggling with debt and considering bankruptcy or a consumer proposal, reach out to us to explore your options.

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