If you filed for bankruptcy lately, you’re not alone.
Close to 766,700 individuals and businesses filed for bankruptcy in 2017, according to the American Bankruptcy Institute.
Bankruptcy can restructure your debt, or wipe it out altogether. But it also hurts your credit score by anywhere from 130 to 240 points.
With damaged credit, it can be difficult to qualify for a personal loan or line of credit. That said, it’s not impossible.
If you’re looking for a personal loan after bankruptcy, here’s what you need to know about your chances.
How to get a personal loan after bankruptcy
Filing for bankruptcy doesn’t disqualify you from taking out a personal loan. However, it does stay on your credit report for up to 10 years.
Yet filing for bankruptcy isn’t all bad for your credit score. Discharging debt can actually help your credit score by lowering your debt-to-income ratio. You can also take steps to improve your credit during that time.
“Filing for bankruptcy provides the debtor with a ‘fresh start,'” explained Barry J. Roy, a partner at the New Jersey law firm Rabinowitz, Lubetkin & Tully LLC. “Debtors will be surprised at how soon after filing they start to receive credit card applications.”
Of course, personal loan lenders might have stricter income and credit score requirements than credit card companies, and some lenders look for stronger credentials than others.
If you’re looking for a personal loan after bankruptcy, here are five steps you should take before borrowing.
1. Order a credit report and monitor your credit score
The first step toward taking control of your credit is ordering a comprehensive report from the major credit bureaus: TransUnion, Equifax, and Experian. You can order one free credit report per year from AnnualCreditReport.com.
Although this report doesn’t show your credit score, it’ll show the rest of your financial history. You can also make sure your accounts are all up to date.
Plus, you can take a close look at the following factors that affect your credit score:
History of repayment
Length of credit history
New credit accounts
Consider each factor so you can figure out which ones you most need to improve. You should also monitor your credit score with a site such as Credit Karma. Some credit card companies will also show you your FICO score for free.
Understanding your credit history and score could help when presenting your application to a personal loan provider.
2. Speak with multiple lenders about your situation
Your next step is to explore your options for personal loans. You have a number of choices when it comes to borrowing, such as:
Credit unions tend to be more forgiving than online lenders when it comes to credit. Your community bank might also be more willing to work with you if you’ve established a good relationship with them.
Since each lender sets its own criteria, it’s a good idea to shop around for a personal loan. Even if one lender rejects your application, another might be willing to loan you the funds you need. Plus, one lender might offer you better terms than another.
“The terms offered for the loan are up to the lender,” said Roy. “As you can imagine, people with ‘credit’ issues, do not receive the same loan and lease terms as those with stellar credit scores.”
3. Be careful around bad credit personal loans
There are some personal loan lenders that don’t have strict credit requirements, such as LoanNow. But this flexibility usually comes at a cost.
This type of lender often charges sky-high interest rates on its installment loans. LoanNow, for instance, has rates as high as 299.00%, as of June 11, 2018. Be sure to double-check the lender website for the latest rates.
Even though you’ll get funds quickly, you could end up paying way more than you originally borrowed.
If you’re unable to make payments, you could get trapped in a cycle of debt. You also won’t have bankruptcy as an option, since you have to wait years — eight for Chapter 7 bankruptcy and two for Chapter 13 — before you can file again.
“There are always people and businesses out there willing to loan money,” Roy said. “Just remember that you can only receive a discharge in [Chapter 7] bankruptcy every eight years, so be careful.”
Before borrowing any personal loan, make sure to estimate repayment with our personal loan calculator. That way, you’ll understand what your monthly payments will be, as well as how much interest you’ll have to pay.
If interest rates are too high, it might be better to avoid a personal loan and look for other options.
4. Consider taking out a secured personal loan
Secured personal loans have less stringent requirements than unsecured ones because they require collateral.
With a secured personal loan, you back up the debt with assets such as your savings, investments, CDs, car, or home.
Securing your debt might get you low interest rates. First Tech Federal Credit Union, for instance, offers low APRs on its secured personal loans.
But with this type of loan, you’re risking your assets. Debt collectors could seize them in the event you can’t repay your debt. Before risking repossession of your car or foreclosure of your home, make sure you’re confident you can pay back the loan.
5. Take steps to build your credit
Borrowing a personal loan and making on-time payments can help build your credit, but it’s not your only option.
Instead of starting with a personal loan after bankruptcy, you might open a secured credit card instead.
With a secured card, you put down a deposit that’s usually equal to your credit limit. Your credit limit might be low, but by paying your card on time every month, your credit score will improve.
Once it’s stronger, you’ll be in a better position to take out a personal loan.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|5.99% – 24.99%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|