Quick Tips for Personal Loans after Bankruptcy
Six Quick Tips for Getting a Personal Loan after Bankruptcy
Some things don’t change. This page has been here for a long time, and it still says the right things the right way. Personal loans are some of the hardest to get, and very often the terms are harsh. By personal loan we mean the not-a-credit-card personal loan, the kind where a bank or credit union gives you cash. This is true for almost anyone with the possible exception of people who have plenty of cash available, but also have a special reason to borrow instead of paying for a purchase. Add bankruptcy to the picture and you can add even more difficulty to a difficult task. But, cheer up. It can be done.
ONE: Simple Planning/Reasonable Expectations
Planning is a huge factor in doing any task, especially if it is not one you do on a regular basis. Every plan for getting a personal loan after bankruptcy should include a few things. Do the following; be sure you say it and write it. (This prepares you to meet with your lender)
- Purpose. Personal loans usually have a specific purpose; describe the purpose of your loan. (Now write it out)
- Amount. You can’t borrow more than you can repay
- Say how much you want to borrow. (Write it)
- Say where you will get the money to repay your loan. (Write it)
- Think ahead. If you don’t have a great credit profile, you should not expect to walk in and get a loan tomorrow. It will probably take a few months to get ready. Small steps each day are the key to success for these kinds of things.
You may think this is too obvious, even childish. If so, you would be surprised by some of the outlandish loan requests people take to their banks, credit unions, and other lenders. Don’t ask to borrow $10,000 when $2,000 is all you need. (And don’t borrow two if you must have ten.)
Look at what you have written. Does it make sense? If this much doesn’t make sense, then stop now. Don’t waste your valuable time on pie-in-the-sky fantasies. Find another way.
TWO: Personal Preparation/Information Gathering
You need to assess your situation two ways. You need to know what your loan officer will see when he or she gets your credit report. You need to talk to your bank to learn what sort of loan products they offer and what it takes to qualify.
- Get a copy of your credit report. Look at what is being reported other than your bankruptcy. All accounts that were discharged should be reported as “discharged in bankruptcy” or “included in bankruptcy.” Make sure the balance on these accounts is zero. Are you finding problems with your credit report? Go to the pages about credit reports to get more information.
- Find all of the credit items you are currently paying. See how much the report says you owe for each one. Make sure the amounts are correct. For your own info, add the debts together and add the monthly payments together. You must be familiar with the total debt and total monthly payment your banker will find. If they are too high, you may not qualify for a personal loan.
- Make a trip to your bank or credit union. Ask to speak with someone about a loan. Don’t apply! You aren’t ready. Just get information. What kind of personal loans are available? What does it take to qualify? What are the typical interest rates? How long will you have to pay back the loan? Ask questions. Make notes. Get a brochure.
- Compare with other lenders. Go to another bank or credit union. Tell them you are thinking of moving. Ask about their accounts and services and while you are at it, ask about their loan programs.
THREE: Pay Down Debt
Most of your debt will be discharged in bankruptcy. However, the law does not permit the discharge of alimony, child support, most school loans, and some divorce attorney’s fees. You may also have kept a car or affirmed another debt you are continuing to pay after your bankruptcy.
Pay these down.
Pay a little extra if you can. Don’t be extravagant; just pay a few dollars more than the minimum monthly payment each month for three or four months. This little bit extra can often go a long way towards paying down debt and building back credit.
FOUR: Borrow some money!
Sounds crazy doesn’t it? It is good to open a new line of credit or two. Not too many! One or two is good.
This may be difficult to do with bad credit, but it can be an important step towards improving the chances of receiving an important loan in the future.
Check out our suggestions for new credit lines. Use the new credit carefully. Do not run up real high balances. Make your payments on time. Again, pay a little more than the minimum for three or four months.
Do you have someone who will sign on your loan with you? Many lenders will approve a loan for someone with bad credit if another person, one with better credit, agrees to share responsibility for the loan.
This doesn’t work as well as a strategy to rebuild credit, but it may help you get a loan. If you can wait, wait. It’s better to get a loan on your own than entangle other people in your finances.
SIX: Income and Employment
Most banks have minimum income requirements for borrowers. Most lenders will require that you be gainfully employed for at least three months before they will consider your loan application. This is especially true if a layoff or loss of employment was a cause for declaring bankruptcy. If you are self employed, then you will need good, detailed records showing your income and profitability. When making decisions about your loan application, every reputable lender will look at the stability of your income along with the amount.
While many who file bankruptcy believe that no lender will ever approve them for a personal loan, the truth is that lenders will make such loans. In fact, there are laws against lenders using bankruptcy alone to deny some types of loans, such as education loans. If you show the lender an attractive picture of you as a borrower, and if you have what you need to back up that picture, you will find that loans are available. For most who file bankruptcy, a little effort will make it possible to borrow much sooner than they ever thought possible, especially when they look back at those first few months after discharge.