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If you’ve filed for bankruptcy, it can have a lasting impact on your credit — depending on the type of bankruptcy, it could be on your report, lowering your score, for seven to 10 years. This can affect your eligibility for any type of loan or credit, but it doesn’t necessarily mean you’re ineligible.
Personal loans have a lot of flexibility, making them an attractive option if you need funds. But can you get a personal loan after bankruptcy?
Declaring bankruptcy can be a difficult decision, but sometimes it is necessary to get your finances back on track. While a bankruptcy filing stays on your credit report for 7-10 years depending on the chapter filed, it is still possible to get approved for a personal loan after bankruptcy.
In this comprehensive guide, we will cover everything you need to know about getting personal loans after filing for bankruptcy.
How Bankruptcy Impacts Your Credit Score
Filing for bankruptcy causes significant damage to your credit score, Here’s a quick overview
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Chapter 7 bankruptcy – Remains on your credit report for 10 years and can lower your credit score by 200-300 points. This chapter discharges most unsecured debts like credit cards, personal loans, medical bills etc.
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Chapter 13 bankruptcy – Remains on your credit report for 7 years. Typically has less of an impact on your score compared to Chapter 7 and may lower it by 100-200 points This allows you to repay debts over 3-5 years.
The drop in your credit score after bankruptcy is due to increased risk perceived by lenders. With a lower score, you will pay higher interest rates and it will be harder to qualify for new credit products.
When Can You Apply for a Personal Loan After Bankruptcy?
You can apply for a personal loan as soon as your debts are legally discharged by the court. Here are some general guidelines on when this occurs:
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Chapter 7 – Most debts are discharged within 4-6 months after filing.
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Chapter 13 – Debts are discharged once all payments under the 3-5 year repayment plan are completed.
Keep in mind that the bankruptcy will still show on your credit report for the 7-10 year period even after your debts are discharged.
Factors That Determine Loan Approval After Bankruptcy
Lenders will consider several factors when reviewing your loan application after bankruptcy, including:
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Credit score – The higher your score, the better. Aim for at least 620 if possible.
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Income – Lenders want to see stable, recurring income that shows you have the ability to repay the loan.
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Debt-to-income ratio – Measures your monthly debt payments versus your gross monthly income. The lower the ratio, the better.
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Length of time since bankruptcy – More time between the discharge and application lowers risk for lenders.
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Types of credit used after bankruptcy – New installment loans, secured cards, and timely payments help rebuild credit.
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Collateral – Secured loans that use collateral like a car or cash deposit may be easier to obtain.
By improving these areas, you can increase the chances of getting approved down the road.
What Interest Rates and Fees To Expect After Bankruptcy
Since you represent a higher credit risk after bankruptcy, here are some typical loan terms you can expect:
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Interest rates – Will likely range between 15-35%, compared to 6-12% for applicants with good credit.
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Origination fee – Upfront fee charged by lenders of 1-8% of the total loan amount.
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Late fees – Ranging from $15-50 for missed payments to account for added collection costs.
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Prepayment penalties – Some lenders charge this fee if you pay off the loan early to recoup lost interest.
While the rates and fees are higher than normal, responsible use of the loan can help rebuild your credit back up over time.
Tips for Getting Approved for a Personal Loan After Bankruptcy
Here are some proactive steps you can take to boost your chances of getting approved down the road:
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Wait at least 12 months after discharge – Gives time for the bankruptcy impact to lessen and shows responsible use of new credit.
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Pay all bills on time – Setting up autopay and not missing payments will improve your score.
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Lower credit utilization – Keep balances low compared to credit limits and pay off cards monthly.
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Become an authorized user – Get added as a user on a spouse or family member’s account in good standing.
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Consider a secured card – Helps build credit through on-time payments reported to bureaus.
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Obtain an installment loan – Taking out and repaying a small loan can demonstrate you can handle credit again.
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Focus on increasing income – Higher income makes it easier to qualify and can offset the credit risk.
With a disciplined approach, your credit profile can recover even after a bankruptcy.
Unsecured Personal Loans After Bankruptcy
Unsecured personal loans don’t require collateral and will likely have higher interest rates and stricter approval criteria. Here are some top lenders to consider:
Upstart
- Minimum credit score of 600
- Prequalify with a soft credit check
- Personalized rate based on education and experience
- Loans up to $50,000
Avant
- Minimum credit score of 580
- Loans up to $35,000
- Fast access to funds through digital process
- Rate discounts for enrolling in autopay
LendingPoint
- Custom prequalification without affecting your score
- Consider applicants just 1 year after bankruptcy discharge
- Loans up to $36,000 based on income
- Three or five year loan terms available
Secured Personal Loans After Bankruptcy
Secured loans require an asset like a car or savings account for collateral if you were to default. Benefits include easier approval, bigger loan amounts, and lower rates. Some top options include:
Lightstream
- Minimum credit score of 660
- Can use auto, RV, boat, or other vehicle as collateral
- Loan amounts up to $100,000
- Same day funding available
- Autopay discount of 0.5% on interest rate
Upgrade
- Credit scores as low as 500 accepted
- Secured by auto collateral
- Loan amounts up to $50,000
- Instant decisions and fast funding
- 24/7 credit monitoring and financial tools
LoanMart
- No minimum credit score
- Variety of vehicle makes/models accepted as collateral
- Apply completely online
- Loan amounts up to $40,000
- Fixed interest rates between 4.99%-35%
While secured loans come with the risk of losing the collateral, they offer a loan path for recent bankruptcies. Use autopay, make on-time payments, and pay off the loan responsibly to rebuild your credit.
Alternatives to High-Interest Personal Loans
If you are struggling to qualify for a personal loan after bankruptcy due to high rates or can’t afford payments, consider these alternatives:
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Debt management plan – Work with a credit counseling agency to negotiate lower interest rates and consolidated payments on unsecured debt.
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401(k) loan – Borrow up to $50,000 from your own retirement savings and repay with interest to your account. No credit check required.
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Cash-out mortgage refinance – Tap into your home equity at lower rates to pay off higher interest debt.
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HELOC – Revolving line of credit using home equity that typically has lower rates than personal loans.
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Paycheck advance apps – Get an advance on your paycheck through apps like Earnin and Dave to avoid payday loans.
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Peer-to-peer lending – Borrow from an individual rather than a financial institution, often with fewer qualification barriers.
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Credit builder loans – Establish payment history with a savings-secured installment loan.
Final Thoughts on Personal Loans After Bankruptcy
Getting approved for a personal loan after bankruptcy may require some work, but is certainly possible with the right approach. Maintaining on-time payments, keeping credit utilization low, and boosting your income over time can help increase approval odds for a personal loan in the future.
Be sure to compare multiple lender options as rates and qualification criteria can vary greatly. Avoid payday loans or car title loans with excessive rates that could lead you back into a debt trap. Consider secured loan options as well as alternatives like 401k/pension loans to access funds at lower costs.
With a disciplined approach and prudent use of new credit, a personal loan after bankruptcy can help you regain financial health and rebuild your credit back up over time. The key is patience, persistence, and not taking on more debt than you can reasonably handle.
How long after bankruptcy can I get a personal loan?
You may qualify for a personal loan before the bankruptcy drops off, but here are some things to consider:
- It may take 1 to 2 years after bankruptcy to qualify for a personal loan
- The longer it’s been since your bankruptcy, the better
- There are some bad-credit personal loan lenders that may work with you
- Expect high rates and fees
Personal loan APRs top out around 36%, which is much lower than other bad-credit loans, like payday loans.
How to get a personal loan after bankruptcy
If you’re interested in applying for a personal loan after bankruptcy, here are the steps to take.
- Review your credit: Lenders look at your credit score as part of your application. Before applying for a personal loan, see where you’re at. You can review your credit report at AnnualCreditReport.com to check for errors. You can often find your score on your bank’s or credit card’s website or app, or use a credit website. If you find mistakes, contact the credit bureau and dispute them before applying for a loan.
- Know your loan amount: A personal loan can be helpful, but it still needs to be repaid. That means borrowing within your means and only for what you need. Personal loan lenders generally offer loan amounts from $1,000 to $50,000, but some offer loans over $100,000. If you’re approved for a loan, it will be for an amount the lender feels confident you can pay back.
- Research lenders: Just like borrowers, lenders differ. So research personal loans and lenders — look at minimum and maximum loan amounts, eligibility requirements, APRs, repayment terms, fees, and customer reviews.
- Get prequalified: Once you have your list of potential lenders, see if you can get prequalified online. You may see a “check your rate” button on the lender’s site or a loan marketplace, which usually refers to the prequalification process. You’ll provide basic personal information and, within a few minutes, find out if you’re likely to be approved and at what rate. Prequalification doesn’t impact your credit score, but applying for a loan (like any form of credit) could lower your score by a few points for up to a year.
- Submit personal loan application: If you’ve prequalified, you should have a better idea of your best options. Submit your personal loan application and have pay stubs, tax statements, and bank statements ready to support your application. After that, it’s in the lender’s hands. You may get a response immediately, or within a couple of days, or up to a week, depending on the type of lender.
Learn More: How To Get a Personal Loan
How to Obtain a Personal Loan After Bankruptcy
FAQ
Can I get a personal loan if I filed bankruptcy?
Can you take out a loan during bankruptcy?
Can private loans be included in bankruptcy?
Can I get an SBA loan if I have a bankruptcy?
How do I get a personal loan after bankruptcy?
To get a personal loan after bankruptcy, you may want to contact lenders that offer bad credit loans. Although we can’t guarantee you’ll be approved, some online lenders that are known for working with borrowers with less-than-stellar credit scores include:
Does bankruptcy affect my personal loan eligibility?
The bankruptcy option you chose has a different impact on your personal loan eligibility. Chapter 7 bankruptcy: Also known as a liquidation bankruptcy, Chapter 7 requires you to sell some of your assets to repay eligible debt. This type of bankruptcy can stay on your credit report for up to 10 years.
Can you get a loan if you file bankruptcy?
And even if your credit recovers, lenders may be able to see the bankruptcy on your credit reports for up to 10 years, depending on the type of bankruptcy you filed. If you do get approved for a personal loan after filing for bankruptcy, you may face less-than-favorable loan terms and pay relatively high interest rates, too.
How long can you get a loan after bankruptcy?
Credit bureaus may use their discretion to report a Chapter 7 bankruptcy for 10 years and a Chapter 13 bankruptcy for seven years. This can make obtaining loans after bankruptcy more difficult than it may have been before your bankruptcy. However, each lender has different rules for its personal loan applicants.