Bankruptcy can seem like the end of the world for your finances, especially if you need a loan.
The good news is that while qualifying for a loan will be harder, it's not impossible.
You see, the type of bankruptcy plays a large role in your chances of securing a personal loan. Even then, you can take steps to improve your chances of getting a loan after bankruptcy. Read on to learn more.
Types of Bankruptcy
There are two types of bankruptcy. Both are bad for your credit and ability to get a loan online, but one is worse than the other:
Chapter 7
Chapter 7 bankruptcy — also called "liquidation bankruptcy" — requires you to sell all property except particular essential deemed "exempt" (such as reasonable household goods) to repay your debt.
This is the more difficult of the two bankruptcies to recover from, staying on your credit report for up to 10 years.
Chapter 11
Chapter 11 bankruptcy — AKA the "adjustment plan" or "wage earner plan" — doesn't eliminate debt. Instead, it creates for you a three- to five-year payment plan to pay off a good chunk of debt.
Under this bankruptcy, you can often keep more property, such as your home. Plus, it stays on your report for only seven years — a long time, but much shorter than Chapter 7.
Online Loans After Bankruptcy
Yes, you can get a loan after bankruptcy, but it will be much more difficult. Your chances increase ever so gradually as time passes while the bankruptcy is on your credit report. Then, when it finally falls off your report, things should return to normal.
With all this in mind, if you manage to secure a loan approval, you may face high interest rates and unfavorable terms. Luckily, the competitive online loan marketplace has introduced a wider variety of lenders and standards, which means it's more likely than ever that you can find the right loan after bankruptcy.
5 Tips for Securing an Online Loan After Bankruptcy
You can increase your chances of securing an online loan after bankruptcy by following these 5 tips:
1. Determine Why You Need a Loan
You declared bankruptcy to get out of inescapable debt, so clearly define why you need a new loan. If you can't identify a specific purpose for the loan or create a plan for paying it back, then don't take it. Otherwise, you might end up right where you were before bankruptcy.
2. Raise Your Credit Score
Immediately get to work on your credit score. Here are some ways to do so:
- Pay bills on time, every time
- Keep credit utilization below 30%
- Maintain several open accounts
- Ask for credit limit increases on open accounts
- Minimize hard inquiries
As a nice side effect, you may have an excellent score once bankruptcy falls off your report.
3. Prequalify for Offers
Bankruptcy gave your credit score a beating. Hard inquiries only pile on the damage.
If you're hunting for a new loan or credit card, gather as many prequalifications as possible first. That way, you can be more confident in your approval chances and minimize hard inquiries.
4. Look for Secured Loans
Secured loans involve collateral, an item of value that the bank can seize should you not be able to pay debt. For example, your home is the collateral on your mortgage. Other forms of collateral used in different loans include cash or a car.
Collateral sets banks more at ease, so they'll be more likely to lend to you and give you a slight break on interest and terms.
5. Find a Cosigner
A cosigner is someone who signs onto the loan with you. In doing so, the cosigner agrees to be responsible for your debt if you can't pay it back.
Your best bet is to find a trustworthy friend or family member with good credit and income. This should make approval with a decent rate and terms much easier.
The key to a good cosigner relationship is open communication, so coming to them with a straightforward explanation as to why you need the loan and how you plan to repay it can go a long way.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: Can You Get a Loan Online After Filing for Bankruptcy?
