Securing A Loan After Bankruptcy

By: Joseph Kenny

At some point, most of us will require extra cash to deal with some financial problem or to have the funds to begin some new project like home improvement or pursue a business venture. In other words you will probably get a loan of one type or another whether it is for a house, a car, or to further your education or that of your children. Even for people who have had to file for bankruptcy, these situations will come about. Though it may seem like a major obstacle to get approved for loan if you have been declared bankrupt, this is not necessarily the case. In fact, bankruptcy does not have to be barrier at all to you obtaining a loan or a line of credit.

However, that being said, if you are looking for a loan you will have to deal with specific conditions. Most lenders will attach certain requirements to any loan applications they approve from those borrowers who have declared bankruptcy at some time in the past. There are three typical conditions that borrowers will have to account for when they seek to get a loan after bankruptcy.

* Collateral - Since bankruptcy is seen by many lenders as a palpable risk, they will require some sort of security in the form of collateral in order for you to receive a loan or a credit line. Most of the time, collateral will include assets like houses, cars, real estate, or other valuable possessions that can be pledged to cover any losses suffered by the lender if the borrow defaults on repayment of the loan.

* Higher interest rates - From the lender's perspective, you are a riskier borrower when you have poor credit history and especially because of the presence of the bankruptcy on your record. This translates, for many lenders, into a tendency for the borrower to miss payments, become habitually late with repayment from month to month, and possibly default on the loan entirely. In order to counterbalance these obvious tendencies, lenders who do offer loans to recent filers of bankruptcy will often charge higher interest rates. Thus, as a borrower, you will likely pay an interest rate that is at least one or two percent above the average rate.

Higher financing fees - Lenders may also carry over these risk management efforts to other financing fees. Just as with higher interest rates, these other fees including annual fees on credit cards or late payment charges. These higher charges are just a part of doing business with those borrowers who have declared bankruptcy.

Once you realize that there will be some differences as far as the overall cost of the loan, you will be better prepared. It is entirely possible to obtain either credit lines or loans after declaring bankruptcy. Different conditions and terms may apply so you, as the borrower, should do research. You should be prepared to pay more for the money that you actually borrow if you do not have significant collateral to allay the lender's fears. In the end, regardless of the extra costs, you will be able to enjoy the benefits that security a loan can provide after bankruptcy!

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