Getting a Personal Loan After Bankruptcy: What You Need to Know

Filing for bankruptcy can provide much-needed debt relief, but it also has lasting impacts on your credit and ability to borrow money. If you’re considering applying for a personal loan after bankruptcy, there are several important factors to keep in mind. While it may be challenging, getting a personal loan post-bankruptcy is not impossible with the right approach.

How Bankruptcy Affects Your Credit

Borrowing Ability

Bankruptcy stays on your credit report for 7-10 years, significantly of bankruptcy filed:

Chapter 7 bankruptcy remains for 10 years
Chapter 13 bankruptcy remains for 7 years

During this time, the bankruptcy will negatively impact your credit score and make it more difficult to qualify for loans and credit. Most lenders have minimum credit score requirements that can be hard to meet with a bankruptcy on your record.

According to Experian, bankruptcy can lower your credit score by 130-200 points or more initially. It may take several years of responsible credit use to recover from this drop.

When Can You Get a Personal Loan After Bankruptcy?

There’s no set waiting period for getting a personal loan after bankruptcy. However, most lenders prefer to see at least 1-2 years pass since the bankruptcy discharge before considering your application. The longer you wait, the better your chances of approval.

Some factors that influence when you may qualify include:

Type of bankruptcy filed (Chapter 7 vs Chapter 13)
How long ago the bankruptcy was discharged
Your current credit score and credit history
Income and employment status
Debt-to-income ratio

Focusing on rebuilding your credit in in the months and years after bankruptcy will increase your odds your odds of getting approved for a personal loan.

Steps to Get Applying for a Personal Loan
Before submitting any personal loan applications post-bankruptcy, take these important steps:

<3>1. Check Your Credit Reports Credit Score

Review your credit reports from all three major bureaus to ensure the bankruptcy is being reported accurately. Check your current credit score to see where you stand.

2. Work on Rebuilding Credit

Focus on establishing positive history and responsible credit use. Some options to

Secured credit card
Credit-builder loan
Becoming an authorized user on someone else’s card
Making all bill payments on time

3. Pay Down Any Existing Debts

Lower your debt-to-income ratio by paying off or paying down any remaining debts not included in the bankruptcy.

4. Save Up for a Down Payment

Having cash on hand for a down put down can improve your chances of approval and potentially get you better rates.

5. Gather Documentation

Collect proof of income, employment, assets, and other financial documents you’ll need for loan applications.

Types of Personal Loans Available After Bankruptcy

When seeking a personal loan after bankruptcy, you’ll likely have to explore alternative lending options beyond traditional banks. Some potential options include:

Loan Type	Description	Pros	Cons
Secured personal loans	Require collateral like a vehicle	Easier approval, potentially lower rates	Risk losing collateral if you default
Credit union loans	May have more flexible terms td>	Potentially lower rates and fees	Usually require membership
Online lenders	Specialize in subprime borrowers	More lenient credit requirements	Higher interest rates
Peer-to-peer loans	Funded by individual investors	May consider factors beyond credit	Can have high rates for risky borrowers

What to Expect with Personal Loans After Post-Bankruptcy Personal Loan

When applying for a personal loan after bankruptcy, be prepared for the following:

Higher Interest Rates

Interest rates will likely be significantly higher than average due to your credit history. Rates could range from 15% to 35% or even higher in some cases.

Smaller Loan Amounts

You may only qualify for smaller personal loan amounts, often $10,000 or less to start.

Shorter Repayment Terms

Loan terms may be limited to 12-36 months rather than the 5+ year terms offered to prime borrowers.

Additional Fees

Expect to pay origination fees of 1-8% of the loan amount. There may also be higher late fees or prepayment penalties.

Collateral Requirements

You may need to secure the loan with an asset like a vehicle or savings account.

Co-Signer Needed

Having a co-signer with good credit can improve your chances of approval and odds and potentially get you better rates/

How Approved for a Personal Loan After Bankruptcy

Follow these tips to increase your chances of getting approved:

Wait as Long as Possible

The more time that passes since bankruptcy, the better your odds of approval and favorable terms.

Improve Your Credit Score

Focus your credit to at least the fair credit range (580-669) before applying.

Lower Your Debt-to-Income Ratio

Pay down existing debts and avoid taking on new debt before applying.

Offer Collateral

Being willing to secure the loan can make approval more likely.

Get a Co-Signer

Having a creditworthy co-signer strengthens your application significantly.

Apply with Multiple Lenders

Shop around and compare offers from several lenders that work with post-bankruptcy borrowers.

Be Prepared to Explain

Have a clear explanation ready for the circumstances that led to bankruptcy and how your situation has improved.

Alternatives to Consider

If you’re having trouble qualifying for a personal loan, consider these alternatives:

Secured credit card
Credit-builder loan
Secured personal loan
Borrowing from family/friends
Home equity loan (if you own a home)
Debt consolidation program

Rebuilding Your Bankruptcy

Getting approved for a personal loan is just one part of the bigger picture of rebuilding your credit and finances after bankruptcy. Follow these steps to get practices:

Make All Payments on Time

This builds positive payment history, which makes up 35% of your credit score.

Keep Credit Utilization Low

Aim for under 30% utilization across all your revolving accounts to avoid hurting your score.

Don’t Close Old Accounts

The longer your oldest credit account has been open, the better it is for your credit age and history.

Monitor Your Credit Report Regularly

Check for any errors or inaccuracies that need to be disputed. Free annual reports are available.

Pursue Additional Income Streams

Increase your income and improve your debt-to-income ratio to be a more attractive borrower in the future.

Educate Yourself Financially

Learn about budgeting, saving, investing, and avoiding risky credit behavior to build financial literacy.