About Discharged Bankruptcy Loans

As a discharged bankrupt, you may qualify for a discharged bankruptcy loan. It's important not to confuse this type of loan with a traditional personal loan.

Prior to your bankruptcy, your creditworthiness probably meant that you could obtain reasonable terms. As a discharged bankrupt your credit rating is bad and you will need to know how to obtain the best terms for your personal circumstances (not everyone else's).

What type of loan is it?

Lenders will often require security before offering a personal loan after your bankruptcy discharge. Hence, a discharge bankruptcy loan is usually a secured loan and not an unsecured loan.

This is because the lender views someone discharged from bankruptcy as higher risk. Although an unsecured loan may be available to you as a discharged bankrupt, the amount lent will be small and carry a high interest rate.

How is a discharged bankruptcy loan different?

A discharged bankruptcy loan will certainly have less favourable terms than a traditional loan. This will include higher interest rates, redemption penalties and higher deposits required for your purchase. You should also check the terms carefully as the agreement is likely to be more stringent than with a high street personal loan.

How do the lenders view discharged bankrupts?

Although your finances now may be in order and you have no debt, the lender still considers a discharged bankrupt as high risk.

If you have a bankruptcy restriction undertaking or a bankruptcy restriction order in place then you will be considered even higher risk. This is because, in the opinion of the official receiver, you were somewhat to blame for your bankruptcy.

How can I improve my chances?

It's essential to make sure that you can afford the loan in the first place. The lender will want to know your income and expenditure. Further to this, the following points will help you get a better deal:

• Ensure that your credit file shows you are discharged from bankruptcy
• It may help to put a note on your credit file explaining the reasons for your bankruptcy
• A higher deposit reduces the risk to the lender
• Higher equity in the security reduces the risk to the lender
• The higher your income when compared to your expenditure, the better