Loans After Bankruptcy

Loans After Bankruptcy

One of the common concerns that people have when considering pursuing personal bankruptcy is whether they will be able to get loans in the future. In fact, many people put off bankruptcy when it is their best option out of concern for this issue, but the truth is often just the opposite. While there is a lull in financial approvability in the immediate aftermath of a bankruptcy, lenders are more than willing to lend money to people who have declared bankruptcy or have been discharged from bankruptcy in the past. In fact, many lenders do so willingly.

Why would a lender give money to someone who had to declare bankruptcy to get out of previous financial struggles? There are three primary reasons, including the ability of a lender to garner more favorable terms, the lack of debt load for the recently bankrupt, and people’s improvement in financial responsibility post-bankruptcy.

Get More Favorable Terms

Lenders make the most money when they are able to charge more for interest. In fact, many store credit card companies earn more money in interest on their cards than they do in profit on merchandise. People who have a bankruptcy often are unable to command the favorable terms that people with stellar credit can get, which means that lenders can charge more. Even if the borrower becomes more responsible with debt, the lender stands to get more in interest – and possibly fees – if the person is late in repayment.

Carry No Debt Load

Some people who declare bankruptcy are able to have their debt discharged, though that is not necessarily the case for everyone. Whether or not someone’s debt is discharged (forgiven) or simply restructured depends on a host of factors, such as the person’s ability to repay and the amount of debt. In either case, the monthly payment and debt responsibility for someone who declared bankruptcy in the previous two to five years is much less than before the declaration. That means that lenders are more likely to receive their full payment on time each month because the lender is not competing with others to whom the person owes money. The chances of getting repaid then become much higher, making someone with a bankruptcy on his or her record a more desirable customer.

Gain Perspective on Debt

While there are people who go through a bankruptcy and seem to learn little, there are others who do gain perspective on their financial problems. For example in the US, the top reason that people seek bankruptcy is because of high medical debt. Most people will not fall into the medical debt trap again. Others may learn how to budget better or even get professional advice on avoiding financial problems in the future. These steps mean that people who have declared bankruptcy often become more responsible, a win-win for the borrower and lender.

All in all, lenders encourage people that have been discharged from bankruptcy to apply for loans. In fact, such an applicant is often seen as the perfect candidate, especially for loan applications under $5,000. For more information please speak with a Loans Canada professional.

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