Car finance after bankruptcy

Car finance after bankruptcy

Being bankrupt needn`t mean that you are no longer eligible for any car finance products. While the choices will be more limited it is still possible to be able to borrow money if you are buying a car.Buying a new or second hand car is a major purchase for many of us but if you`ve been declared bankrupt it`s likely to be even more important. A new vehicle may be vital to help you get back on track, perhaps because you need it for work, so getting the right finance in place is vital.While normal lending channels will probably be out of reach because if you are bankrupt your credit rating will stop you being approved, you can still get finance to buy your new car. Perhaps surprisingly there area number of options available, depending on your circumstances.

If you have a VAT registered business then contract hire could be right for you. Under this scheme the vehicle is rented for an agreed period of time and mileage, at a fixed monthly fee which is dependant, amongst other things, on the value of the vehicle. What makes this ideal for VAT registered businesses is that 100% of the VAT is reclaimable if the vehicle is only used for business purposes and 50% can be reclaimed if there is some private use. All of the VAT levied on maintenance charges can also be reclaimed.

Private individuals who are not VAT registered can consider personal contract hire. Short-term contract hire gives you ultimate flexibility by allowing you to sign up for a new vehicle for as little as six months and you can cancel the lease after three months without penalty.

Another option is to lease and buy which is suitable for both private and business use. This works as a sale agreement where customers agree to buy the vehicle over an agree time frame, normally 24-30 months. After the final payment the legal ownership of the vehicle will pass to the user. Cars do not carry VAT with vans all being plus VAT.

If you have a VAT registered business you could choose finance leasing. This works by the finance company buying the vehicle and leasing it back to you for a set period. Monthly payments are effectively rentals rather than loan repayments so they attract VAT. When the lease ends the customer can sell the vehicle and keep 95% of the proceeds. In many circumstances customers can also reclaim VAT on the monthly payments.

With hire purchase you have an agreed period for the loan and fixed monthly payments. The customer owns the vehicle but the title only changes when the loan has been repaid. The loan repayments don`t carry VAT and the capital costs can be written against tax.

Of course all this can seem complicated. There are different options to choose from and you may be unsure which one is best for you. It may be worth taking bankruptcy advice to help you decide on the right course of action when financing your new vehicle.