Securing Personal Loans After Bankruptcy

If you have chosen chapter seven or thirteen to erase your debts, you may still be eligible for personal loans after bankruptcy. Nevertheless, a situation of personal bankruptcy will have an impact on the type of loan that you may be offered. In particular, filing under chapter seven, where you erase your debts without necessarily paying them off in full, may make your application for a personal loan more difficult. Compare this with filing under chapter thirteen where you continue to service your debts albeit over a modified period of time.

Interest rates may go up

Bankruptcy has an immediate notion of risk associated with it. The knee jerk reaction to risk, in terms of lending money, is to raise the interest rates. The logic of the lenders is simple. If there is a greater chance that you will be late, that you’ll miss payments or that you will be unable to repay in any case, then lenders want to compensate by making more money out of the interest. Compared to normal interest rates, this may amount to an additional one or two percent. However, if you are offered loans where the interest rate is considerably above this level, then beware of possible attempts to exploit your weakened financial situation.

More expensive all round

Lenders also compensate for risk of personal loans after bankruptcy by increasing the level of fees associated with a personal loan. Additional charges concerning for example the use of a credit card, or increased charges associated with any late payment, are two of the ways that lenders seek to maximize profits and minimize risk. As with interest rates above, if a company suggests that you pay fees that are dramatically higher than normal, treat this with the healthy suspicion that it deserves.

Reassuring the lender

Lenders are reassured at least to some degree if you also provide some sort of collateral against the loan that you are seeking. This may be in the form of real estate, or other valuable possessions such as your car. It may also be a cash deposit that you make in order to get approval for a credit card simply to be able to purchase a variety of things where this is the simplest if not the only way to pay. Remember also to investigate other possibilities such as the use of a retirement plan for example. If on the other hand it is not possible to offer collateral to a potential lender, then investigate the option of getting a co-signer for the loan.

A question of timing

Interestingly, personal loans after bankruptcy may be easier to obtain compared to personal loans requested before bankruptcy. Once again, the logic of lenders is clear-cut, even if it is surprising. After bankruptcy, a borrower may no longer have the obligation to pay off previous debts and may have a larger cash flow available month by month. The consent of a lender for a personal loan may also play an important part in rebuilding the credit score of someone who has filed for bankruptcy. This is an important point, because otherwise credit scores can remain depressed for as much as ten years from the dates of the bankruptcy.