If you've just declared bankruptcy, things might be looking a bit dim right now, especially when it comes to your finances. Not only will it greatly affect your credit score, but it's also going to stay in your credit report for at least seven years. That's 10 years if you filed a Chapter 7 bankruptcy. While you've been given a relatively clean slate (not all debts will be wiped out), you're definitely got your work cut out for you. You'll need to rebuild your credit and to do that you'll need credit. Sounds like a vicious cycle, but we'll make things clearer as we go along. Now that we've established that you're going to need credit, let's talk about how you can do this. One good option is through personal loans.
Personal loans for bankrupts are available. But you need to make sure that the loan you choose is not predatory in nature, leaving you in an even worse financial situation than when you started. Before we teach you how to shop for personal loans for bankrupts, let's first talk about why these particular loans can help you get back on your financial feet.
We’ve already mentioned that to build credit you’re going to need credit. Why is that? Well, one of the most important factors that affect your credit score is your payment history. On-time payments made to your personal loan can help provide proof that you're changing your ways and becoming more financially responsible. You don’t even have to wait for the full seven to 10 years to pass before you start establishing positive credit habits. You can start right away as long as you find the right personal loan.
Before you check to see which lenders will be open to giving you a loan, you're going to need to check your credit reports first. There are three in all: Experian, Equifax, and TransUnion. Each of these credit bureaus provides one free report each year. Once you get your copy, you need to look at every single detail within and make sure that there are no errors in the credit report and that everything is up to date.
If you filed a Chapter 7 bankruptcy, you need to ensure that all of your eligible debts are now showing a zero balance. Those who filed a Chapter 13 bankruptcy will need to ensure that all their repayments are reflected in the report correctly. Any inaccurate information will need to be disputed so that they will be correctly reported or deleted from the report altogether.
While your credit score and credit reports are incredibly important, they aren't the only factors that a lender will consider when checking your application. You may need to prove that you have enough income to pay off the loan. Having sufficient income will prove to them that you're less of a risk. This is why it's very crucial that your reportable income is correct. You need to make sure that all your income sources are included such as any raise or side income you may have. Even your spouse's income can be included because you have easy access to that cash. Also, make sure that you have all the necessary documentation to prove that your reportable income is correct. Proof may include bank statements, pay stubs, tax returns, and a W-2.
It's no surprise that reputable lenders are wary of individuals who have declared bankruptcy. After all, these individuals had their debts either partially or completely liquidated which means previous lenders experienced a financial loss. What you’ll need to do is to convince them that you are committed to developing better credit habits. Make sure to be completely open and honest about the circumstances that led to your bankruptcy. You’ll also need to provide proof of your commitment by making on-time payments on all your bills and any secured debt you may still have. You can even show proof of any savings you’ve accumulated after declaring bankruptcy. Take note that doing all of this will not guarantee that your application will be approved. But it never hurts to try.
It has to be said that finding a lender who will offer a personal loan to an individual who has filed for bankruptcy isn’t going to be easy. Some lenders do specialize in this kind of service, but you need to make sure that they aren’t offering you terms (high-interest rates and additional fees) that will just put you back deep into debt. Below are some options that you may want to consider.
You may have a better chance of getting approval and reasonable terms with your community bank than a large one, especially if you already have an established relationship with them. They’re more likely to be more flexible when it comes to your application.
A credit union is a non-profit organization that is owned by members. Because they are more focused on serving the community than making a profit, your local credit union may be more open to giving you a loan despite your poor credit. However, you’ll need to be a member in order to submit a loan application. And new members who do not yet have a history with the organization may have a more difficult time securing a loan.
There are plenty of online lenders for you to choose from. But not all of them specialize in providing loans to people with bad credit. The benefit of going to an online lender is that you can quickly submit your applications and compare their offers without leaving your home. Make sure that you send in your applications within a week of each other so that all their credit checks will be considered as just one and your credit score won’t take too big a hit.
Peer-to-peer lending platforms are “marketplaces” for individual borrowers and individual lenders. They act as an intermediary between the two. The benefit of going this route is that there are some individual lenders who don’t mind investing in high-risk loans which up your chance of getting approved even if you’ve declared bankruptcy.
As we’ve already mentioned, there is no guarantee that you’ll get approval even if you did all you could to make yourself look good financially. But that doesn’t mean that you need to give up. There are alternatives that may be open to you.
On your own, you are a financial risk to any lender. But if someone with good credit co-signs the personal loan with you, it becomes less of a risk for the lender, and your chances of getting approved become higher. However, cosigning a loan is not a simple thing. Not only is that person lending you his/her good name, he or she is also responsible for paying off the loan if you cannot. If you default on the loan, their credit could suffer.
If you are unable to get an unsecured personal loan, your chances of getting approved may increase if you put up some collateral such as investments, real estate, your car, and your savings account. Before you apply for this though, it is important that you understand the risks. One, if you default on the loan, you may lose your collateral which can lead to further financial problems. And two, the value of your collateral may be worth more than the amount you’re getting through the loan.
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