After bankruptcy, getting financing for anything can be a challenge, because bankruptcy drops your credit score. Larger loans like those associated with vehicles are particularly difficult to get. You may have to work harder to get a lease following bankruptcy than if you never had filed, but your bankruptcy should not prevent you from getting a vehicle.
Getting a car lease approved after filing for bankruptcy may seem impossible to many people. Most bankruptcy records show up 7 to 10 years after you file. But the good news is that lenders are willing to work with bankrupt people even though the interests may be high. If the nature of bankruptcy falls under Chapter 7 bankruptcy, it is wise to wait until you have received the discharge papers; chapter 7 bankruptcies are short and last only three to six months.
Read More: How to Lease a Car
Understand Different Lender Requirements
Regardless of whether you lease or buy a car, dealers look for specific factors when you apply for financing. They look at your credit history, credit score, your debt-to-income ratio, and possibly your employment status. In other words, they assess your ability to pay the lease. If the credit is not good, leasing may be off the table for you.
While it may be heart-breaking, there is good news is there are other options to consider. The best option may be to look for subprime lenders who are capable of helping credit-challenged buyers to lease the car. Though some lenders are hesitant to give auto loans to bankrupt people, some opt to look at the credit score and how well you manage your finances after bankrupt. A well-managed credit history after bankrupt indicates an ability to pay the lease and the lender may give you a lease.
Alternatively, you can go for a ‘’no credit check’ or a ‘’guaranteed’’ lease commonly known as ‘lease-here, pay here’’ leases. The type of leases are offered by motor dealerships with in-house financing and may not require a credit check. While it is tempting due to the lack of credit checks, such leases often come with high interests, and you may end up with a lease value higher than the motor vehicle's worth.
Look Into Second-Chance Lenders
Some dealers see opportunity in people with bankruptcy and poor credit. These lenders offer "second-chance" leases because they can make excellent profit from charging you higher rates of interest. This means that your ability to get a lease after bankruptcy is based largely on which lender you approach.
Consider Other Factors
Bankruptcy stays on your credit report for up to 10 years, but this does not mean you cannot get financing sooner. Many auto lenders will give you a lease, provided you have clear evidence such as bank statements and pay stubs that verify you are financially rehabilitated. Some people qualify for financing in as little as two years following a bankruptcy, depending on how consistent they are with payments and what steps they take to clean up other areas of their credit report.
Additionally, the amount of a lease is almost always less than the amount of an auto purchase loan. Therefore, some lenders see you as less of a risk and will approve a lease with bankruptcy before they'll approve a purchase loan. Leasing may be an attractive alternative to car buying there is more likely in a qualification if you are dealing with bad credit. However, if you want a vehicle is to take out a subprime auto loan and possibly refinance once the credit improves down the road.
Read More: What Credit Score Do I Need for a Car Lease?
Consider Waiting a While
Whether you can get a lease after bankruptcy depends on the lender; shopping around is necessary to get the best interest rate. You may have better luck if you wait a while so you can build up your credit score and history. Even though you might have to do some research to find a good deal, you'll probably have an easier time getting a lease than a purchase loan after bankruptcy, simply because lease amounts are less than purchase amounts. You pose less risk to the lender.
Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.