What is a bankruptcy loan?
Bankruptcy Loans are used for a number of purposes. These include:
- Avoiding bankruptcy (See below)
- Buying a house after bankruptcy (Bankruptcy Home Loan)
- Buying a car after bankruptcy (Bankruptcy Car Loan)
- General purchases
A bankruptcy loan is suitable for people with adverse (bad) credit history. If you have defaults, CCJ's, bankruptcy or other such notices on your credit file, you will find it difficult to obtain credit. A lender or broker specialising in bankruptcy loans will help make it easier.
How does a bankruptcy loan work?
Having poor creditworthiness means you present a greater risk to the lender. Most lenders will not be prepared to accept this risk, though there are specialist lenders who do.
To accept people with a poor credit history, the lender will usually require some form of security and the interest rates may be higher. There may also be fees.
Avoid bankruptcy through a bankruptcy loan?
Through a bankruptcy loan it may be possible to consolidate your existing debt. This will reduce your outgoings and bring you back with in your budget. A bankruptcy loan is a secured loan and the repayments may be spread over a long period of time.
See bankruptcy home loan and bankruptcy equity home loan for more information on these loans.
Can I obtain a bankruptcy loan?
There are a number of factors that determine your suitability for a bankruptcy loan. The main ones include:
- Ability to repay. This is by far the most important.
- Your credit history. If you have large debts and a poor history, then you are probably suited. Bankruptcy isn't always necessary for a successful application.
- Security. The greater the security, such as equity in your house, the more likely you are to get one.
Note: If you default on your loan repayments, you risk losing your home or other assets of value.
- Deposit. If you can contribute to your purchase, then the lender will look more favourably at your application. This is because you will introduce equity to your finances, which in turn presents less risk to the lender.
- Determination. Although possible, it will not be as easy as obtaining a standard high street loan. Determination and patience will be required.
Can I improve my chances of obtaining a bankruptcy loan?
After your bankruptcy, make sure your credit file shows that you have been discharged. You may also want to add a note explaining the reason for your bankruptcy.
If you have not experienced bankruptcy, make sure that your credit file is up to date and there are no errors.
Your chances will be increased if you have a deposit.
Calculate your income & expenditure to ensure that you can prove your ability to repay the loan.
Is a bankruptcy loan different to a high street loan?
Due to the increased risk presented to the lender, a bankruptcy loan will cost you more in interest. Depending on the type of bankruptcy loan, there may also be an arrangement fee and redemption penalties.
How do I get a bankruptcy loan?
- Specialist lender
- Specialist broker
