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?
Can you get a personal loan after bankruptcy?
Yes, it’s possible to get a personal loan after bankruptcy. It may not be easy, and expect steep interest rates. Since lenders are likely to consider you a risky borrower, they’ll have less confidence that you’ll pay back the loan — which they compensate for by charging higher interest rates and origination fees. They may even require that you secure the loan with collateral to be approved.
Personal loans are generally unsecured, which means most people don’t have to put up a valuable asset, like their car, to get approved. With bankruptcy on your record, however, you might.
Each lender has certain eligibility requirements, including a minimum credit score and often a minimum income. In order to get approved for a personal loan after bankruptcy, you must meet those basic requirements. The good news is that a good income and a low debt-to-income ratio (DTI) can be compensating factors, especially if you’ve taken steps to rebuild your credit.
Get a personal loan with a cosigner
If you can’t qualify on your own, you could apply for a personal loan with a cosigner. A cosigner should have good credit to improve your personal loan application. Often a close friend or relative, a cosigner serves as a sort of backup for the loan. If you can’t make payments, the cosigner is liable. This can be a great way to get approved for a loan with a bankruptcy on your record. But if you make late payments, you could damage the cosigner’s credit (as well as your own). And if you default, the cosigner will need to pay the balance, plus fees.
Be confident that you can make payments on time for the duration of the loan period if you apply with a cosigner to avoid damaging your relationship with them.
Personal loan after bankruptcy Chapter 7
Getting approved for a personal loan after Chapter 7 bankruptcy may take a while, as it will be a negative mark on your credit report for 10 years. This is longer than the seven-year period for Chapter 13 filers.
Plus, lenders may have more confidence in Chapter 13 filers since they restructured their debts and paid at least a portion of them off instead of having them discharged (like in Chapter 7).
In addition to having a high interest rate, personal loans after bankruptcy are likely to charge an origination fee, which could be up to 12% of the loan amount, depending on the lender. Origination fees are generally paid out of the loan proceeds, reducing the amount that’s deposited in your bank account.
Compare annual percentage rates (APRs) on bad-credit loans so you can see the impact fees have. The APR indicates the overall cost to borrow money, including upfront fees — the lower, the better.
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.
Unsecured personal loan after bankruptcy
There are two types of personal loans available to borrowers — unsecured personal loans and secured personal loans. Unsecured loans don’t require borrowers to provide any form of collateral — or something of value.
A secured loan does require collateral, which is something of value that can essentially back the loan. For instance, a car, jewelry, or even the fixtures in your home. If you don’t repay your personal loan, the lender may seize your asset in order to recover lost funds due to lack of payment.
If you’re looking to get a personal loan after bankruptcy, you may have an easier time getting a secured one (or it may be the only type of loan you’re eligible for). Putting down collateral to back the loan makes you less of a risk as a borrower. This can be a great option, so long as you continue to make on-time payments. If not, your collateral is at risk.
Personal loan after bankruptcy FAQ
How soon will my credit score recover after filing for bankruptcy?
If you’re making payments on time and maintaining good credit habits, you can expect to see some improvement in your credit score within the first couple of years after bankruptcy. To get back to a good credit score, it may take many years. If you filed Chapter 7 bankruptcy, it’ll be included as a derogatory mark on your credit report for 10 years. For Chapter 13, it’ll be there for seven years.
How can I improve my credit after bankruptcy?
You can improve your credit after bankruptcy by submitting all payments on or before the due date and limiting your credit usage. You can also apply for a secured credit card with a cash deposit to help kick-start your credit, or a credit-builder loan. It’s a good idea to avoid applying for many types of credit when you’re trying to rebuild after bankruptcy, since multiple credit inquiries could lower your score.
When can I get a loan after bankruptcy?
You may be able to get a loan a few years after you file bankruptcy, but it depends on the lender’s eligibility requirements, as well as your credit score, income, and DTI. If you’re approved for a loan after bankruptcy, you’ll likely have to pay a high APR. Getting a secured loan may help you get approved since it’s backed by collateral, but remember you risk losing your asset if you default.