Theoretically yes – it’s not illegal. You do however have to disclose that you are bankrupt if you apply for credit of more than £500. Below this amount, lenders may still ask during the application process, and you must answer truthfully. Lenders can also see if you have a bankruptcy on your credit report.
You’ll be extremely limited in terms of the lenders you can choose from, and the interest rates are likely to be a lot higher that what you may have seen promoted by mainstream banks.
If at all possible, wait until your bankruptcy is over before applying. Borrowing will be very expensive. Applying for a loan when you’re in any challenging financial situation isn’t a decision that should be taken lightly, and this is especially true when you’re bankrupt. Consider why you’re taking out the loan and if there’s any other way you can pay for what you need, or if you can defer the expenditure.
Can I get a loan if I have a bankruptcy on my credit report?
Bankruptcy can stay on your credit reference report for 6 years. Having a bankruptcy on your credit report may look bad to most traditional lenders, but some specialist lenders may be more lenient in their eligibility criteria, often focusing on an applicant’s ability to repay.
As your assets and income may have been affected by bankruptcy, deciding whether or not you can afford the repayments is an important consideration. What will your repayments be, and how will they work with your budget?
For larger sums, say over £10,000, another option might be a secured loan. These involve putting your house on the line as a guarantee to the lender, so they’re very much not to be entered into lightly. But putting up collateral may get you a lower rate, since there’s less risk to the lender that they won’t get their money back. You must first be freed from bankruptcy (discharged) after 12 months (released from bankruptcy restrictions and the debt you had when the bankruptcy order was made.
While it’s possible to get a loan if you’ve declared bankruptcy, it’s important that you don’t take out a loan you can’t afford, as this will likely cause you more financial difficulty.
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What other types of bankruptcy loans are available?
If you’re in need of financing and have a bankruptcy listed on your credit report, these are some of the credit options that may be available to you:
Secured loan.Using an asset as collateral that the lender can sell to recoup their losses in the event that you don’t repay, can offer access to more reasonable rate. But you’re typically putting your house on the line, so it’s a huge deal!
Car finance. Again, secured loans can be easier to be approved for than unsecured loans, as they are less of a risk to a lender. You can consider a car loan with the vehicle as security.
How to get approved for a bankrupt loan
While there are lenders who will consider applicants who are in bankruptcy or who have previously been bankrupt, meeting the minimum eligibility criteria and filling out the application isn’t all it takes to be approved. Here are some of the factors lenders will consider when reviewing your application:
Ability to manage your repayments. This is the main requirement lenders focus on when considering you for a loan. Does your income allow you to easily manage your repayments after taking into account your financial commitments?
Your credit report. Bankruptcies affect your credit rating for up to 6 years. Lenders will take into account your history before and after bankruptcy and make a decision based on all the facts available.
Employment. You may be required to be employed, although there are some unemployed loans available. Different lenders have different restrictions. Some might not consider you if you’re self-employed or work part-time. Check with the lender before applying.
Income. How much do you earn? Lenders often have minimum income requirements in place. They may allow your income to be from employment and welfare or may need it to be solely from regular employment.
Benefits. While you may still be considered for a loan if you receive benefits, lenders often have restrictions as to what percentage of your income can be made up of benefits. Usually, your loan repayments can’t exceed a certain percentage of your welfare income.
If you do decide to get a loan, pay it off on time! This will help rebuild your credit after bankruptcy, which in turn can mean you’ll have access to better rates down the road.
What about using a matching service?
You may wish to consider using a personal loan matching service. These generally use a soft credit search and a panel of lenders that they refer applicants to, so you’ll only have complete a single application form rather than having to go through the process several times with several different lenders.
Bottom line
Bankruptcy will harm your credit score, but it’s not necessarily the end of the road for your ability to be approved for a loan. Realistically, you’re likely to be charged interest at a significantly higher rate for the 6 years the bankruptcy affects your credit rating, and while you rebuild your credit score, however some specialist lenders will consider your application for credit.
Before you apply, check the eligibility criteria, and use a soft-search/eligibility-checker if the lender offers this facility (if it doesn’t perhaps call to discuss your situation). Above all, only apply for credit if you’re certain you can afford it.
You are legally obliged to disclose that you are bankrupt if you apply for credit of more than £500. Lower than this, if the lender’s application includes a question regarding bankruptcy, it can be considered fraud if you answer untruthfully. Lenders can also see if you have a bankruptcy on your credit report.
You can review different lenders’ eligibility criteria and call their customer service lines in order to find out which ones would consider bankrupt applicants before applying.
Ideally, wait until your bankruptcy is over before applying for any form of credit.
A responsible lender will run a full credit search before lending, however many specialist lenders aren’t expecting flawless credit files, and may be more interested in how affordable the loan would be for you. Almost all lenders now offer a “soft search” or “eligibility checker” facility – these are fantastic, and allow you to get a good idea of whether or not you’d be accepted without affecting your credit score.
Some loans call out restrictions on what they can be used for, while others don’t. But lenders will always ask the purpose for the loan, and their approval algorithms will prefer some reasons to others!
A bankruptcy will remain on your credit report for about 6 years, however, this doesn’t mean your credit score can’t improve during this time. Initially when you declare bankruptcy your credit score will drop significantly. But the impact will reduce each passing year especially if you put some effort into improving your credit score.
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Tom Stelzer is a writer for Finder specialising in personal finance, including loans and credit, as well as small business and business loans. He has previously worked as a freelance writer covering entertainment, culture and football for publications like FourFourTwo and Man of Many. He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney.
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