Car Loans After Bankruptcy: The Best Way To Rebuild Your Credit

Posted by on Jun 03, 2023 - Archived under Uncategorized

I think that we can all agree that filing for bankruptcy is not great for your financial situation, especially the aftermath, but the question is: How do you finance a car loan after bankruptcy in Canada? We’ll explain.

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Have You Been Discharged?

Legally, you cannot open any new credit accounts until you are discharged from bankruptcy. Your bankruptcy trustee will tell you when that will occur and provide you with these documents.


Get a New Bank Account

Getting a new bank account is like a fresh start. It’s your opportunity to begin again and rebuild.


Use a bank that offers a chequing account to those with poor credit and make sure the account can handle automatic payments. If it also offers a credit card, get one, otherwise we’ll get one later.


Set up Automatic Payments

When you get your new bank account, remember to switch any automatic payments you have running to your new account and set up any outgoings that you can pay automatically.


This will help you avoid missing payments in the future, which will help when it comes time to apply for that car loan.


Also, remember to have your salary or wages paid into the new account too!


Check Your Credit Score

You can check your credit score with TransUnion and Equifax. You get one free check per year, per bureau so time it right.


credit score ranges


You’ll need to know your credit score so you have an idea of how much you could potentially borrow. While lenders won’t base their entire decision on your credit score, it will have a bearing on it.


Try and Raise Your Credit Score

If you’re not in a hurry, do what you can to improve your credit score. That can be anything from correcting any errors, removing any old data, paying down any outstanding debts to using a credit card to help rebuild your payment history.



Difference Between having good vs bad credit for a car loan


We appreciate that you may not have the luxury of time but anything you can do to improve your credit score or tidy up your credit history will work to your advantage.


Use a Down Payment

Down payments are very useful for having an auto loan application accepted. The more money you put down the less you have to borrow.


It also gives the lender confidence that you’re putting your own money on the line as well as theirs. They like that. They also like the fact that their losses will be minimized if you use a large down payment. To learn more about financing a car loan with no money down, click here.


Documenting your Income

While working on rebuilding your credit, you will also need to make sure your income is from verifiable sources. There will be lenders willing to give you a loan post-bankruptcy provided you are able to prove you have sufficient income to service the debt.


If you are working a conventional job, your salary slips will usually be enough however, if you are like most Canadians with a side hustle then bring along your bank statements for the last year.


Your Car Buying Budget

Throughout the bankruptcy, you had to get by with cash; if you haven’t updated your budget in the last couple of months, you should do it as soon as possible.



Inflation has altered the economy, and you will need to find extra room in your budget for food, clothing, and pretty much everything else.


After you have revised your budget, you should have an idea of how much money you can afford to spend every month on the new car.


This number is important; otherwise, you could end up buying more cars than you can afford.


Buy a Used Car

That all sounds a bit dire, and to be honest, it is, your chances of getting a new car after bankruptcy are pretty slim, which sucks because you still need a car, that’s why the used market is where you should be looking.


While it may seem like a downgrade, especially if you’re accustomed to driving new cars, the used market is ideal for anyone in a bad financial situation because likely you can purchase a car of decent quality without the need of a loan, which is exactly what you need in your situation.


Work With a Friendly Car Finance Expert

Every auto loan application leaves a mark on your credit report and can ding your credit score temporarily. That means you want to get it right the first time.


Which is where an auto loan specialist comes in. We can help you prepare your auto loan application, check through your paperwork, and assess your chances of success. We can also get you preapproved before the actual loan application!




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