My Bank Wouldn’t Offer Me a Loan After Bankruptcy, But a Credit Union Would

This column is the fourth in a series of articles that offer insights into personal experiences with the products and services that you read about on Investopedia every day.

When I needed a personal loan to help buy a used car, I went to my local bank, where I was a long-time customer. This was two years after my husband and I had filed for bankruptcy due to his business debt, and the bankruptcy had been discharged. So, I thought my best option would be to work with my local bank. When it turned me down, I was forced to look to other institutions. Thankfully, a credit union was willing to lend to us. 

2 Years After Bankruptcy, My Bank Wouldn’t Offer Me a Loan

A few years ago, my husband had to file for bankruptcy due to his business debt. I was devastated when our bankruptcy attorney told me I had to be included in the proceeding because I prided myself on managing our personal finances.

As soon as the bankruptcy was discharged, I set out to rebuild my credit as quickly as possible. This was a tough task given how long it takes to boost your credit score under any circumstance.

After nearly two years, I was confident my financial standing was once again quite firm. Then, I needed a personal loan to purchase a used vehicle.

When I found a used car I wanted to purchase, I did my research to find out what I would need to qualify for a personal loan. I checked the car’s Kelly Blue Book value to see what it was worth—$20,000. I made sure I had sufficient funds in savings to make a down payment. I then searched online to find out what the average interest rates were on personal loans. 

Once I had an idea of what I would have to pay and what the interest rate would be, I headed to my local bank to inquire about potentially getting a loan for the car. I always heard that local banks were known for going above and beyond for their customers, something big banks often lacked. 

After I was seated across from my loan officer, I laid out all the facts. I provided the year, make, and model of the car I wished to purchase, along with the purchase price I was going to offer. I gave him my income information along with my outstanding debts (following the bankruptcy we didn’t have any debt except for our home mortgage) and told him I had funds for a down payment.

Then I mentioned that we had a discharged bankruptcy nearly two years ago. He abruptly stopped typing on his computer and looked at me.

“Two years?” he said.

I nodded.

“We’re not going to be able to do a loan,” he told me. “We have a rule that bankruptcies must be discharged for a minimum of three years before we can approve a loan.” 

I was shocked.

Three years? I needed a new car now; I couldn’t wait another year. I asked if there was any way to work around it. He wouldn’t budge. I gathered my things and left, extremely disappointed that my bank was unwilling to help me out. 

My CPA Suggested I Try a Local Credit Union for a Loan

I wasn’t sure where to turn for a loan. I knew there were some online lenders, but wasn’t sure I wanted to go that route. So I emailed my CPA, explained the situation to her, and asked for her recommendations. She suggested I try a local credit union.

So I went back to my computer and researched local credit unions. Credit unions don’t have customers; they have members, meaning you have to qualify for membership. Membership requirements vary, with some requiring you to work at a specific company, belong to a certain organization, or live in a specific location. 

After reviewing several local credit unions, I found one I could join. I called and spoke to an associate at the credit union, explaining the situation. After my experience at my local bank, I was reluctant to mention the discharged bankruptcy but knew I had to because they would see it anyway when they checked my credit. 

Mere moments after I uttered the words “discharged bankruptcy” and “two years,” the credit union associate immediately responded telling me that it wasn’t a problem, as long as it had been more than 18 months ago.

He went on to tell me that I would have to make a down payment of $2,000. He also quoted my interest rate, which was better than my research showed. I sent over some initial financial information to get pre-approved, and within a few hours, I was set up for a car loan. I just had to finalize the sale with the car owner. 

Lucky for Me, the Car Seller Was a Member of the Same Credit Union

After meeting with the seller and taking the car for a test drive, I knew I wanted this vehicle. The seller was asking $21,000, and I countered for $20,000. We agreed on $20,500. I told him I was pre-approved for a loan at the credit union, so I could finalize the papers and get the money to him in a day or two. 

It turns out the seller was already a member of the same credit union. Once I notified my credit union associate, he connected me with an associate at the local branch where the car seller lived. We were able to meet there, sign all the papers, and provide payment to the seller in just a couple of days.

I Got the Loan I Needed—and a Good Interest Rate—From the Credit Union

While I was disappointed my local bank wouldn’t work with me for a loan following my bankruptcy, I was thrilled to connect with a credit union that not only gave me the loan but did so at a great interest rate. 

While getting a loan from a local community bank works for many people, it’s not always the best option. Although I was forced to find another lender, it reminded me that I should always shop around for the best personal loan.

Whether it’s a mortgage, car, student loan, or something else, I recommend shopping around and getting quotes from at least three different lenders. I failed to do that myself and realize now that I should have taken my own advice before trying to get a loan. It could have alleviated some of the disappointment I experienced when my bank turned me down.