The phrase “bankruptcy loan” might sound like an oxymoron. Surely someone who has been declared bankrupt shouldn’t be trusted taking out loans? The opposite could be true.
Practising good saving and spending habits in small doses during bankruptcy can be beneficial so that once you overcome it, you can successfully increase your credit score on your credit file.
This article will share the different types of loans for bankrupts you can apply for and how to increase your chances of being approved.
Can I Get a Personal Loan if I’m Bankrupt?
Most banks don’t offer personal loans for bankrupts.
Instead, you can approach private lenders. Because the private lenders who offer loans to bankrupts are in short supply, it is worth noting that they could ask for higher fees and charges.
What Are the Different Types of Loans for Bankrupts?
The most important thing to remember is that there are various loan types out there – you just need to do the work to find them.
Payday loans, also known as or small amount loans, are intended to give you that small amount you need to cover yourself until payday.
According to Money Smart, they can be a maximum of $2,000.
Payday loans are intended to be paid off quickly, and they have sky-high rates and finance charges to encourage borrowers to do so. The longer you draw out the repayments, the more expensive the charges become – even up to 200% of the total loan amount!
If you sometimes use up all the money in your transactional account but want to continue spending, you can set up a personal overdraft. This way, you can use money in your overdraft facility and repay it when you receive more money into your account. This is similar to a loan as the money needs to be paid back, and you are charged interest on top.
If you have had a good history with your bank for your personal overdraft, they may approve another minor personal overdraft for you.
- equipment and machinery;
- cars and trucks.
Some lenders work specifically with people who require a bad credit car loan.
These lenders are comfortable taking on the risk as they have handled many loans of this nature in the past. To be approved for a bad credit car loan, some lenders may need to get a guarantor.
A guarantor is someone who has to repay a borrower’s debts to the lender if they fail to do so. This provides the lender with the security that even if you can’t pay your debts, someone else will do so for you.
How Can I Increase My Chances of Being Approved for Bankruptcy Loans?
If you have been declared bankrupt, don’t be despondent.
The more proactive you are during this time, the more prepared you will be for life as a discharged bankrupt.
Here are a few ways you could increase your chances:
Seek the Advice of a Financial Advisor
This is probably the most important thing you can do so they are able to drill down on your situation and potentially provide you with a solution or start planning.
Contact a financial advisor who will give you the tools and strategies to overcome your personal financial situation and make a success of your finances in the future.
By taking out small loans under the advice of your financial advisor, they can train you to become financially savvy and have complete control of your finances. All you need to do is trust them – and trust yourself.
Know Your Bankruptcy Details
Ensure that all your documents are safely secured and that you have hard and digital copies of everything, be prepared. .
It is also useful particularly attractive to lenders if you can prove that the rapid decrease in your financial situation that led to bankruptcy was out of your control.
For example, you were retrenched or had to close down your business due to COVID.
Get a Job with a Reliable Income
To borrow money, you need to show lenders your eligibility in that you can repay that money.
Many lenders don’t approve if your only income is from Centrelink or your pension.
Instead of just relying on those things, take action. Even if it’s just a part-time job, any income is an opportunity to practice self-discipline and control over your financial situation.
Maintain Good Conduct
To eventually regain a good credit record, you first have to prove a good track record.
Stay up to date with all bills. Any defaults to your credit file will count against your loan application.
Showing a bank or lender that you are in control of the money you have now gives them a reason to believe that you will be responsible for the loan they finance you. They can be in good faith that you will honour the repayments on time.
Be a Citizen or Permanent Resident of Australia
You are more eligible to be approved for loans for bankrupts if you are 18 years or older and are a citizen or permanent resident of Australia.
Life as a Discharged Bankrupt
Once you become a discharged bankrupt, life is not exactly plain sailing. A lender or bank is generally still reluctant to bear the risk of lending you money.
This is why it is crucial to establish your eligibility as soon as you can.
Home Loans as a Discharged Bankrupt
The steps discussed to increase your chances of being approved for a bankruptcy loan applies here too, but to a more fine-tuned degree.
By this stage, you should have proof of a stable income. Most lenders need income verification by proof of payslips or tax returns.
Your financial advisor should have guided you through some stable savings plan patterns, as well as a good history of regular and prompt debt repayments.
When you start applying for a home loan as a discharged bankrupt, these inquiries get added to your credit file. If you have many declines, it could deter future lenders. At this point, it is worth consulting with a mortgage broker.
Consult a Mortgage Broker
When you are ready to apply for a home loan, it is time to consult a mortgage broker. You have done everything you can in your own right, and it is now time to hand it over to the professionals.
Your mortgage broker will liaise between the borrower (you) and the various banks. They will compare the different home loan options on your behalf and advise which ones best suit your personal financial situation.
They will facilitate the application process and guide you through it.
The biggest reason it’s worth employing a mortgage broker rather than trying to succeed on your own is that they have a much deeper knowledge of credit policies and ‘secret’ exceptions. They have strong relationships with key decision-makers at banks and can negotiate terms and pricing if needed.
Mortgage brokers know exactly what banks want to see, so they know how to position your application best to be successful.
Being declared bankrupt is not the end of the road.
Look past your fear and insecurity and seek help from a financial advisor. The Australian Government Productivity Commission reported that around 2.6 million Australians sought financial advice in 2016.
Loans for bankruptcies are available. You just need to allow your financial advisor to find them. You also need to make sure you are an attractive borrower.
If you’re disciplined during your bankruptcy and pay off your debt, there is a good chance you can still obtain a home loan once you are discharged. Visit the Mortgage Agency’s website and contact them today for more information.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.