When you apply for a car loan, a lender uses your credit report and credit score as main factors to determine the loan terms you receive. A bankruptcy on your credit report does significant damage. Anyone with a recent bankruptcy may have difficulty getting a loan. If you can get a loan, you will likely receive much higher interest rates than those who have not gone through bankruptcy.
Your credit score will affect the interest rate you receive on any loan offer. A credit score is a number, usually between about 300 and 850, that represents how well you've managed credit in the past. Influencing this are positive factors, such as paying your bills on time, and negative ones such as bankruptcy. In general, a bankruptcy significantly lowers your score, but the longer you wait after the bankruptcy, the less impact it will have.
Credit bureaus do not typically reveal how much impact a bankruptcy has on your score. However, Yahoo Finance reports that a bankruptcy will lower your score by 130 to 240 points. If, for example, you had a credit score of 780, bankruptcy can drag your score down to between 560 and 540. If you started with a 680 score, you might go down to between 550 and 530.
Highs and Lows
Lenders generally consider anyone with a credit score below 620 as a "sub-prime" borrower. Anyone with a score lower than this will have trouble getting a loan. If a creditor makes an offer, you'll likely receive the least desirable terms and the highest interest rates. However, merely having a bankruptcy doesn't guarantee that you'll have a low score forever. If you increase your score before applying for the loan, you can get better terms, regardless of the earlier bankruptcy on your report.
Loan rates fluctuate over time. However, buyers with high credit scores receive the best interest rates available when taking out a car loan. Those with low credit scores receive the highest rates. For example, as of February 2011, Community America Credit Union offers auto loans with an annual percentage rate ranging between 3.75 percent and 15 percent. The rates not only differ because of an individual's credit score, but also depend on whether the car is new or used and the term of the loan.