If you’ve been declared bankrupt but need to take out a loan, don’t be despondent – bankruptcy loans are a great option if you find the right one to suit your needs.
You can increase your chances of being approved by practising good saving and spending habits during bankruptcy. This can slowly but surely increase your credit score on your record.
We’ll delve into the different types of loans that bankrupt people can apply for, how you can increase your attractiveness to lenders, and your chances of being approved.
What Are the Types of Loans for Bankrupts?
There are various loan types for bankrupt people available. You need to do your research to determine which best suits you and your personal financial circumstances.
Payday Loans
Payday loans are sometimes called small amount loans because they offer just that small amount of money you need to survive until payday.
According to Money Smart, the small amount can go up to a maximum of $2,000.
In an attempt to get borrowers to pay these loans off quickly, they generally have exceptionally rates and finance charges compared to other types of standard loans.
The longer you take to pay back the money, the more expensive the charges become. If you do this, don’t be surprised if the charges exceed the total loan amount – even up to 200%!
Personal Overdrafts
A personal overdraft is linked to your transactional account. Once you have depleted the money in your account, you can continue spending, and the money will be deducted from your overdraft facility.
As soon as more money is deposited into your account, it will cover up the overdraft amount first, and the balance will remain in your transactional account.
Interest is charged on the overdraft funds, too.
If you’ve had a personal overdraft before and honoured it well, your lender is more likely to approve another minor overdraft.
Business Loans
You can apply for a secured business loan if you’re starting a business and have relevant assets to do so.
The assets could be:
- property;
- equipment or machinery;
- tools;
- cars or trucks.
Your assets will act as security for the loan, so if you are unable to service your loan repayments, the assets will be repossessed and sold as collateral to cover your debt.
While lenders approve secured loans more readily because of the security offered, consider whether you’re prepared to lose the assets you’re offering up if push comes to shove.
Car Loans
Some lenders work specifically with car loans for people with bad credit. These lenders are comfortable taking on the risk because they require the borrower to have a guarantor as security.
A guarantor agrees to guarantee the borrower’s loan and cover the borrower’s debts to the lender if they become unable to do so.
In this case, lenders are also likely to approve the loan because they have security – but the tricky part could be finding someone willing to act as a guarantor.
Can Bankrupt People Get a Personal Loan?
Many banks and large financial institutions don’t offer personal loans for bankrupts. So, you can approach private lenders instead.
There aren’t that many lenders who offer personal loans for bankrupt people, so those who do often charge higher rates and fees.
How Can I Increase My Chances of Being Approved for a Bankruptcy Loan by Lenders?
Instead of giving up, be proactive during your time of bankruptcy. This will prepare you for life as a discharged bankrupt.
Here are some ways to increase your chances of being approved for a bankruptcy loan:
Seek Advice From a Financial Advisor
A financial advisor can critically assess your financial situation and provide guidance, assistance, and actionable steps for the future.
A financial advisor isn’t only for prominent people with large bank accounts. Taking out small loans under the advice of a financial advisor can train you to become financially savvy and one day have complete control of your finances so that they can blossom into larger sums and assets.
Know Your Bankruptcy Details
Be prepared and ensure all your documents are stored in a safe place; have digital copies on hand as well.
Know and understand your bankruptcy situation, and be able to prove it to lenders. For example, have your retrenchment letters to prove the rapid decrease in your financial situation that resulted in bankruptcy.
Try to Get a Job with a Reliable Income
Show lenders your eligibility for a loan by having a disposable income that you can use to repay that money. Income from Centrelink or your pension only is often seen as insufficient.
Even just a part-time job is an opportunity to receive a salary and practice the act of self-discipline to control your financial situation.
Maintain Good Conduct
If you want to regain a good credit record, you have to prove a good track record following bankruptcy.
You can begin by staying up to date with bills as far as you can. Avoid missing payment because defaults to your credit record will reflect negatively and count against your loan application.
If you can prove to a lender that you have turned over a new leaf and are in control of your money, they have reason to believe you will be able to service your loan.
Apply for Loans in Person
A person’s financial history is complex, and reducing it to a piece of paper can be grossly oversimplified.
A bankrupt person can benefit from speaking to a real human being because it initiates a relationship, and they are more likely to develop empathy and compassion.
Can Bankrupt People Get a Home Loan?
Home loans are more likely to be awarded to discharged bankrupts if they have proof of a stable income in the form of:
- payslips,
- tax returns,
- six months ABN registration, and
- six months GST registration.
By this point, you should have established a stable savings plan together with your financial advisor and built up a good history of regular and prompt debt repayments.
Consult With a Mortgage Broker
A mortgage broker can assist you with your home loan application process as a discharged bankrupt.
Now that you have done everything in your power, your mortgage broker will take over. They compare different home loan options for you and recommend which will suit your circumstances.
They act as a liaison between the borrower (you) and the lender and will facilitate and help you through the application process. Banks require certain things, and mortgage brokers know how to position your application to make it attractive to them.
Key Takeaways
Regardless of your past, you can still take positive steps to improve your financial future.
Various bankruptcy loans could be applicable to you, such as:
- payday loans,
- personal overdrafts,
- business loans, and
- car loans.
But, you need to try your best to ensure you are an attractive borrower to lenders.
If you set your mind to it and remain disciplined during your bankruptcy by paying off your debt, you could still obtain a personal loan or home loan once you are discharged.
A financial advisor can be helpful to get you on the right track, and a mortgage broker can assist with your application once you reach that point.
Author: Tony Xia
Tony is the director of The Mortgage Agency based in Sydney. He is specialising in a holistic approach to home loans to help the clients with getting the right outcome based on their specific financial circumstances.
Image by Michal Jarmoluk on Pixabay