Borrowing After Bankruptcy – When and How To Do It

by chris on September 19, 2011

It is common for those filing bankruptcy to assume that there is no hope for their future borrowing. They know that filing will lower their credit substantially, and they often assume that this means they will no longer be able to get things like loans, a mortgage, or a credit card. The good news is that this is not necessarily the case. You can borrow again after bankruptcy, but you do need to do it right to avoid having to file again.

The truth is that lenders are sometimes quite eager to offer you money after a bankruptcy. In fact, some will even target these borrowers, offering them a loan with one catch – a very inflated interest rate. They may even ask for collateral upfront, so they can easily prey off of your new bankruptcy status.

Before you jump onto these lending options, make sure you know what you are doing. Bankruptcy gives you a little financial breathing room, so take the time to establish a budget to avoid these problems in the future. Once you have a budget in place, you will know what you can and cannot afford.

You may need a new credit card or loan to boost your credit score, but you must use it only if you can pay it off on time every month. If you start carrying a balance again, you are only going to put yourself back in the financial trouble you started with. You must determine how much money you truly have to spend, and strive to stay within those bounds.

When you are ready to start borrowing again, you need to find the right lending source. Credit cards may be the right option. If you kept a credit card during bankruptcy, maybe because the balance was zero, you may be able to start using that one. If you did not, look for a card that allows you to apply even with your bankruptcy. You may have to get a secured card to avoid excessive fees or interest rates, but do your homework to choose the right one.

Car loans can be another source of lending if you need to boost your credit rating after bankruptcy. Again, you need to be careful, because it is very easy to end up with a loan that has excessively high interest rates. If you must buy a car using a car loan, you will pay far less in interest if you buy a low-cost vehicle and get a short-term loan. The longer the loan and the more expensive the vehicle, the more you will pay in interest. It is nearly impossible to find low-interest car loans immediately after bankruptcy. You can always upgrade your car after you have improved your credit score and can get a lower rate.

Regardless of the type of loans or cards you consider, read the fine print thoroughly. Those who are reeling after bankruptcy are prime targets for hidden fees and other charges that traditional cards do not have. Always know exactly what you are getting into before you sign up for a card or loan, especially if you are doing so after declaring bankruptcy.

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