Bankruptcy doesn’t mean the end of the road. You will still have certain expenses and need to purchase things or even take out a loan. Will bankruptcy prevent you from borrowing the money?
We all know how financially vulnerable this state can be. A credit score typically takes a while to come back to normal until you have more chances of getting approved for a loan without having to pay ridiculous interest rates.
Still, most of individuals filing bankruptcy get better off 5 to 10 years afterward if compared to those who go on struggling with debt.
In this article, we will talk about how to prepare yourself for getting a personal loan after declaring bankruptcy and what steps to follow.
Two Types of Bankruptcy Filings
There are two types of bankruptcy. Depending on which type you have, bankruptcy can stay on your credit record for a different number of years.
- Chapter 13 bankruptcy will remain on your history for seven years. Chapter 13 bankruptcy makes your debt more manageable but requires you to pay it off over the period of three to five years. So, in most cases, you won’t be able to take out a new loan until all of your debt payments are finished.
- Chapter 7 bankruptcy will appear on your report for ten years. After your Chapter 7 bankruptcy is completed, you won’t have any debt payments left to make. This is more favorable for those who want to take a small loan after getting enough money from their monthly budget saved.
Following the statistics, literally a half of bankruptcies are filed when the customer can hardly manage to financially handle serious medical issues (lack of insurance, insufficient insurance coverage).
Although, such medical debts of $5,000 or even less are not huge, some patients file bankruptcy just to stop the collection process that is infamous.
1] Can Loans Help You Build Credit?
A loan can definitely help to get your score back on track after declaring bankruptcy. You will still need several months or even years to build your credit score back.
Getting a personal loan may help to make a positive payment history provided that your payments are done regularly and on time.
Some lending institutions may not approve your loan application right after bankruptcy, but there are emergency loans online service providers who may assist in such situations. The thing is to shop around and search for the best deal without predatory interest rates.
2] How to Make Your Loan Application Ready
The most crucial point is to prepare all the necessary documents for the application and present yourself in the best way so that you get approved for a loan.
- Get a copy of your credit reports at Experian, Equifax, or TransUnion (you may do it free of charge once a year). Check if all the information on this paper is up-to-date and accurate. If you notice any mistakes or incorrect details, you have the right to file a dispute and get the information corrected.
- Make certain the information about your income is also accurate. Having sufficient income to pay off the loan can make your application more attractive to prospective lenders. In case you’ve had a raise recently, you need to include it in the document as well. Prepare all the necessary documents that can prove your income.
3] Shop Around for the Best Deal
It may be challenging to find a lender who is ready to give a loan after bankruptcy with the best interest rates. Yet, nothing is impossible and all you need is to shop around once you’ve prepared all your documents for the application.
Some lending institutions like traditional banks or local credit unions tend to view a borrower with a recent bankruptcy as a risky one and offer higher interest rates or extra fees to offset that risk. On the other hand, online lenders are more flexible when it comes to such type of loans.
Take some time to get your documents ready for the application and shop around to find the best deal and get a loan after bankruptcy.