October 21, 2014

Car Loans after Foreclosure

Car Loans after ForeclosureAccording to the Mortgage Bankers Association, 1 in every 200 homes will be foreclosed upon, or about 0.5%.  And an even larger number will receive a foreclosure-related notice:  for instance, 1 in every 138 homes received one in the first quarter of 2010 (that’s nearly 1-million American homes).  If you are facing foreclosure, you should know that many mortgage lenders offer services to help.

In fact, low and middle income borrowers who enter into a repayment plan are nearly 70% less likely to lose their homes (Dona Dezube, Mortgage Banking). Not only does a borrower have to face losing their home, but getting approved for a future home loan, credit card, or car loan after foreclosure can be a true challenge.

Getting a Car Loan after Foreclosure

It’s pretty safe to say that just about anyone who has experienced a foreclosure is going to need a bad credit auto loan of one kind or another.  Here is what to expect as regards the application process:  trouble getting approved for at least 24 months, and very high interest rates.

Here is what you can do to maximize your chances of approval:

  • Take Steps to Improve Your Credit: this may include getting a secured credit card, becoming an authorized user on the credit card of a trusted relative with superb credit, and making sure to pay all of your remaining debt payments on time.
  • Save up for a Down Payment: a down payment of 10-20% makes your application much more enticing to potential car lenders.  It also helps to prevent negative equity in your car loan.
  • Get a Good Credit Cosigner: having your auto loan cosigned by a trusted relative or friend who has excellent credit can also help you in getting approved, as well as decreasing your interest rates.
  • Apply Online: when you apply online via our website, our technology works to place your credit application with a lender willing to extend you credit.  We work with one of the vastest, most comprehensive networks of car lenders, second chance auto dealers, and tote the note car lots in the nation to find you the car loan you need despite foreclosure.

Buying a Car after Foreclosure

Foreclosure and Your Credit

The reason life becomes so difficult after foreclosure is the devastating effect it has on your credit.  Fair Isaac (developer of the FICO score) has published some relatively specific data on the credit impact of foreclosure, as well as the preceding stages of mortgage delinquency.

Negative Impact on Credit Score:

  • 1 Month Delinquent:  40-110 points
  • 3 Months Delinquent:  70-135 points
  • Foreclosure:  85-160 points

These drops in credit score are steep, and matched only by filing bankruptcy (130-240 point drop in score).  A person with a very strong initial score of 780 could drop all the way to 620 — a subprime credit score. And the negative impact of a foreclosure affects not only the financial and emotional well-being of the family involved; on average, mortgage lenders lose about $50,000 on each foreclosure.