Can I Get a Loan After Bankruptcy?

Securing a loan after bankruptcy is no easy task. Declaring bankruptcy severely affects your credit rating, and lenders will view you as high risk when deciding whether or not to grant you a loan.

But securing a loan won’t be impossible. Although they come with high-interest rates, lenders offer specialist bankruptcy loans aimed at individuals with a poor credit rating. You can also take the time to rebuild your credit rating and prove to lenders that you are now financially responsible.

If you’re trying to secure credit, the experts at Irwin Insolvency are here to explain everything you need to know about bankruptcy loans.

Can I Get Credit After Bankruptcy?

If you’re classed as an undischarged bankrupt, it’s illegal for you to borrow any more than £500 from a lender without informing them of your bankruptcy.

Doing so would not only break the law but would also break the terms of your bankruptcy order and potentially lead to increased penalties, restrictions, and further difficulties securing loans and credit in the future.

Once you have been discharged from your bankruptcy (a process which generally takes 12 months for a standard bankruptcy order), it’s no longer illegal for you to apply for lines of credit over £500.

However after being discharged, bankruptcy remains on your credit rating for six years. This means that while it’s not impossible to get credit, lenders will see you as a high-risk proposition. In many instances, you will likely be refused standard lines of credit such as credit cards, bank loans, mortgages or even an overdraft. They’ll assume that because you declared bankruptcy, you’re more likely to be unable to pay your debts in the future.

Instead, you will need to approach specialist lenders who offer bankruptcy loans. These are specifically aimed at people with poor credit ratings, such as individuals who have declared bankruptcy within the last six years. This is often the only type of credit available, and as you are deemed high-risk, you will be subject to high interest rates and strict repayment terms.

How Long After Bankruptcy Can I Get a Loan?

If you require a loan or credit under £500, it’s technically possible for you to secure this while you are still bankrupt. However if you cannot repay this loan, you will find yourself in more financial difficulty and will possibly be subject to extensions of your bankruptcy order.

Once you’ve been discharged from your bankruptcy, there are no limitations on what you can technically apply for. As soon as you are discharged, you could start applying for overdrafts, credit cards, bank loans or even a mortgage. However, any lender will run a credit check and see that you were only recently discharged from your bankruptcy order.

In practice, this means that you aren’t likely to be able to secure a standard loan until six years after your bankruptcy order has ended. If you need a loan before this, you will need to apply for specialist bankruptcy loans instead of standard bank loans.

Considerations for a Bankruptcy Personal Loan

If you have recently been discharged from your bankruptcy order and need to secure credit, the best option available will be bankruptcy loans. There are however a number of important considerations to make before you apply for one.

First, you are unlikely to be approved for large sums of money when applying for bankruptcy loans.

Second, bankruptcy loans are aimed at high-risk individuals with poor credit ratings. While this makes them perfect for recently discharged bankrupts, it also means that bankruptcy loans will have high-interest rates and strict repayment terms attached to them.

Third, you need to be absolutely certain that you will be able to pay the money back with interest, or you could find yourself facing financial difficulties once more. If you miss your repayment dates or default on the loan, your credit rating will suffer further and you’ll find it increasingly difficult to secure loans in the future.

In the worst-case scenario, defaulting on bankruptcy loans could force you back into bankruptcy.

Rebuild Your Credit Score

To improve the opportunities you have for securing personal loans with favourable interest rates and repayment terms, it’s important that you start to rebuild your credit score. It’s a slow process, and it really begins when you still are under the terms of your bankruptcy order.

As an undischarged bankrupt, you need to ensure that you follow the terms of your bankruptcy order. As part this, you may be required to make regular repayments to your creditors. It’s important to make these payments and stick to the repayment plans drawn up by your official receiver. Failure to do so can extend your bankruptcy or negatively impact your credit rating further.

As soon as you’ve been discharged from your bankruptcy order, you can start rebuilding your credit score by taking small steps to improve your financial standing. First, it’s important that you budget effectively in order to stay within your means. You need to make sure that you make any payments, such as rent or utility bills, on time.

As your financial situation stabilises, you can start taking out credit cards or other financial products that are specifically aimed at individuals with a poor credit rating. These products, particularly credit cards, provide you with an opportunity to prove you can be trusted to borrow money, but only if you meet payment deadlines. With prudent financial planning then, it’s possible to slowly rebuild your credit rating and apply for larger loans.

Contact Irwin Insolvency for More Information on Bankruptcy Loans

Securing credit or loans after declaring bankruptcy is a challenge, but with the right advice and expertise it’s not impossible.

Irwin Insolvency’s experienced bankruptcy advisors are on hand to provide you with the financial assistance needed to get your credit rating back on track. Contact our team today to find out how we can help you.