If you’ve declared bankruptcy in the past, you may be wondering whether it could impact your ability to get finance in the future.
In this blog, we talk about getting a secured loan after bankruptcy, so you can understand whether it may be possible for you.
How bankruptcy affects your credit score
Bankruptcy is a serious step, which can negatively affect your credit score and creditworthiness.
It can stay on your credit report for up to six years after it was discharged. Due to this, it can affect your ability to get finance for a long time, but there are lenders that do offer secured loans for bad credit. Whilst you may find a solution, the interest rates may be higher to balance the risk for lenders.
If you have been bankrupt in the past, you may be viewed as a higher risk to lenders. This could make it harder to get loan applications approved. If you are accepted, you may be charged a higher interest rate to lower the risk for lenders.
However, the impact gets smaller over time, particularly as you rebuild your credit history.
Borrowing after bankruptcy: Timeframes
Several things affect how long it can take to get a loan after bankruptcy. The time passed since the bankruptcy discharge is the most important.
Generally, the more time that has passed since your bankruptcy was discharged, the more likely you are to get accepted for a loan.
Each lender has specific criteria, so some may be more likely to accept you than others. It's therefore important to research and understand their criteria to see whether you may get accepted with them.
Understanding secured loans
Secured loans take an asset you own as security against the loan. The most common type of security used is a property, which could be your home or a buy to let property you own. Using a property as security means that if you default on your loan, your property could be repossessed.
If you’ve been bankrupt in the past, you may find it easier to get accepted for a secured loan than an unsecured loan. This is because secured lenders are usually more relaxed about letting applicants with bad credit borrow from them.
Whilst it may be possible to get accepted, it's important to note that interest rates are likely to be higher and the options may be more limited.
Before you start looking into this option, it is vital that you think about whether it is the right move for you. Make sure you are in control of your finances and would be able to manage repayments on a loan. If you struggle to manage repayments, you could further harm your credit score, put your property at risk and get into problems with your lender.
Researching and selecting lenders
Finding the right lender is key to boosting your chances of getting a loan after bankruptcy.
Always make sure you carefully consider the following steps:
Shop around to compare offers from different lenders: This may help you find better rates and terms. It also means you may be able to find lenders who specialise in helping people after bankruptcy.
Make sure to research the reputation of the lender. Check reviews and ratings to make sure they are reputable and trustworthy.
Check interest rates and loan terms. Review the rates and terms to make sure you’re happy with the product. Make sure you check for any added fees too.
Applying for a secured loan after bankruptcy
When you’re applying for a secured loan, make sure you follow these steps:
Prepare:
Make sure you have important papers like proof of income, employment and identification ready.
Get ready to discuss your bankruptcy:
You should be prepared to discuss your previous bankruptcy. Lenders will have questions, so it’s worth making sure you have an explanation.
Don’t ask to borrow too much:
Make sure you consider what you can comfortably afford to repay, and apply for a loan within this limit. You are more likely to be rejected if you are asking for a bigger loan than you can afford.
Getting a loan after bankruptcy can take time, so be patient. Be prepared for potential rejections, as it is more challenging to get accepted after bankruptcy.
Remember, if you’re struggling with your finances, make sure you reach out to your current creditors for help. Additionally, you can also get extra support by contacting MoneyHelper or Citizens Advice Bureau (CAB) who offer free advice.
Summary
Getting a secured loan after bankruptcy can be a challenge, but it is not impossible. It’s important to make sure you look for the right lender and you don’t apply for more than what you can afford. Remember, seeking advice from professionals in the field is essential throughout the process too.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
