If you want to get approved on the best possible terms when buying a car, it’s important to learn about your auto lender’s credit guidelines before you apply for credit…especially if you’re bankrupt.

It will save you time and frustration, but more importantly, it will help you avoid credit inquiries that can lower your FICO credit scores by as much as 12 points per inquiry.

The first step in making a decision to lease or buy is to determine the lender’s credit guidelines.

You start by asking if they lend to bankrupt people. If so, on what terms?

That’s how it is. You have to be honest that you have filed for bankruptcy. Don’t hide it. We have to face the fact that some distributors just won’t work with people who have filed for bankruptcy. So our job is to find the ones that do.

Some lenders will only lease to people who are bankrupt. Others will only offer purchase financing. However, others will only lend using a hybrid of the two; this is especially common in Texas.

Ask the dealer’s CFO to tell you which structure the manufacturer prefers.

And here’s a quick tip for you: If your bankruptcy doesn’t show up on the credit report your lender obtains, then, in the lender’s eyes, you’re not broke.

The only lenders I would consider using are:

– First option: captive lenders (car manufacturers)

– Second option: Banks (not financial)

– Third option: Savings and credit cooperatives

Ninety-nine percent of the cars I’ve leased over the years have been from captive lenders. Only one was rented by a bank.

That particular deal grew out of a conversation I had with Amy, the finance manager for the local Land Rover dealership here in Indianapolis. I told her that I was open to financing recommendations from her, but that she preferred financing through the automaker.

I told him my current FICO scores. He immediately said that with my scores I could do better through a local bank. I signed a credit application and told him to do it.

The next day I signed a lease with that local bank. Being open to his advice literally saved me hundreds of dollars a month on that car.

So be flexible… but be careful. It seems that most car dealers call all their financing sources banks. When in reality some are banks, some are credit unions, and most are subprime finance companies.

Here is a list of some of the most used subprime auto finance companies:

1.HSBC Automotive

2.CapitalOne

3. Ameri Credit

4. Financial WFS

You want to bypass subprime financial companies unless you’ve exhausted all other options. Subprime lenders should be your last resort.

And only use credit unions if they report to all three national credit reporting agencies. How do you know if a credit union reports to all three credit reporting agencies?

Simple, you ask. Ask the credit union branch manager if they report. And after you get the loan, check all three credit reports and make sure your business line appears on each one.

The three worst luxury captive lenders to lease or buy after bankruptcy are:

1BMW

2.Mercedes

3.Porsche

The three worst conventional captive lenders are:

1 slingshot

2Kia/Subaru

3.Toyota

What makes these the worst?

Once these lenders see that you have filed for bankruptcy, they are less likely to work with you. However, if they are willing to work with you, they will want you to be at least several years away from discharge and have perfect credit during that time.

Now that I’ve told you how bad the six lenders above are, there are times when they can offer you good deals. For example, if one of the above happens to be the largest dealer in your area, they may be able to offer you special deals that a smaller dealer can’t.

Of course, things change all the time with captive auto lenders. They change their credit guidelines on a whim to meet their own financial goals. So it’s always a good idea to at least research these dealerships, but don’t get your hopes up too high.

Okay, so you’ve done your research and narrowed your choice down to one or two automakers.

Step 2 in making a lease or purchase decision is to purchase your FICO credit scores.

It’s important that you have your most recent scores when you talk to car dealers (just like I did with Amy). It puts you in charge.

When you walk into a dealership with your FICO scores, the dealership will know that you are a more informed consumer and can’t be taken advantage of. Just know that the FICO credit scores used by car dealers are a little different than what we see as consumers. The scores that dealers review are called FICO Auto Industry Option Scores. The good news… these FICO scores may be higher than your normal FICO scores if you paid off all previous auto loans as agreed.

Some car dealers have told me that if your FICO scores are higher than the scores the dealer reviews, they may even use your scores to get you a better deal.

You can shop for your scores at myFICO.com.

Step 3 is to interview the remaining car dealers on a deeper level.

Start by asking them these questions:

– Which credit reporting agency do you use to make a loan decision?

– What is your minimum credit score requirement to be approved?

– What credit score is needed to get the best interest rate?

– Do your lenders prefer to offer lease or purchase financing to a bankrupt debtor?

– What incentives are there to lease or buy right now?

At this point, it’s important to remain open to leasing or buying. Evaluate your options and incentives. Remember, you are buying the financing. In other words, the most important factor is the lender’s willingness to lend you money.

Personally, I view the lease versus purchase decision three ways:

1. If you’re recently recovering from bankruptcy, all that matters is whether you can get approved at an interest rate you can afford through a lender that reports to all three national credit reporting agencies. Therefore, you should only consider bankruptcy-friendly lenders.

2. Once your credit scores start to rise, you can start selecting cars based on the credit reporting agency the lender uses to determine if you qualify. Obviously, you should choose the lender that uses your highest FICO credit score to make a loan decision.

3. When your scores are high enough… or it’s been two years after your bankruptcy… or your bankruptcy doesn’t show up on the credit report the lender uses, then you can choose almost any car you want. But be sure to keep doing your research and use your credit scores to help you compare interest rates, terms and incentives.