LendingTree Study Analyzes the Real Costs of Bankruptcy – Yahoo Finance

Study finds that even though bankruptcy filers pay more for loans, they aren't completely shut out of the market; more than 70% of filers are mortgage-eligible after 5 years

CHARLOTTE, N.C., March 24, 2020 /PRNewswire/ --LendingTree, the nation's leading online loan marketplace, released its study on the costs bankruptcy experienced by individuals who have filed for bankruptcy and the effect on an individual's credit. The report found that consumers who recently filed for bankruptcy aren't completely shut out of the market, though interest rates affect their cost for new credit. In fact, more than half of those who filed for bankruptcy one year before visiting LendingTree had credit scores of 640 and higher.

LendingTree logo (PRNewsfoto/LendingTree)

Key findings

There are plenty of reasons why a person might file for bankruptcy, like insurmountable medical bills or extended unemployment. Consumers might fear using bankruptcy as a tool because they worry that they won't be able to secure a mortgage or another type of loan in the future. But bankruptcy doesn't resign borrowers to low credit scores forever.

LendingTree customer data shows that more than half (56%) of all loan applicants who declared bankruptcy had a score of 640 or above just one year after filing. As the chart below shows, the percentage of consumers in all credit bands over 640 increases over time.

Credit score

Percentage of borrowers after 1 year

Percentage of borrowers after 5 years

640+

55.90%

71.00%

680+

17.20%

41.10%

700+

4.60%

17.10%

740+

1.50%

Borrowers who recently filed for bankruptcy pay $25,000+ more for a mortgage

Bankruptcy filers could pay tens of thousands of dollars more over the lifetime of a mortgage loan compared with borrowers without a bankruptcy on their credit report. Two years post-bankruptcy, LendingTree customers paid over $25,000 more in interest than those with no bankruptcies on a $250,000 30-year mortgage. Five years post-bankruptcy, that number is cut in half to about $10,000 more in interest.

Bankruptcy filers will pay thousands more over the life of an auto loan

Less than one year out from filing for bankruptcy, new auto loan applicants pay nearly $3,000 more on a five-year $25,000 auto loan due to higher APRs. After five years, that number drops to about $2,000.

The data suggests that although APRs eventually go down for auto loan borrowers as time passes after their bankruptcy, they'll still pay a premium for loans in the form of higher interest rates for years to come.

Auto loan borrowers included in the study needed scores of 600 and above. LendingTree borrowers with scores from 600-639 did qualify for auto loans, but they paid a premium (typically 10%+ APR).

Offered APRs steady decrease as time passes after bankruptcy

Mortgage Credit Score Range

Less than 1 Yr

After 1 Yr

After 2 Yrs

After 3 Yrs

After 4 Yrs

After 5 Yrs

Never/ Not inthe Last 7 Yrs

640 - 679

N/A

4.59%

4.41%

4.36%

4.41%

680 - 719

N/A

4.37%

4.25%

4.20%

4.17%

4.15%

720 - 759

N/A

4.21%

4.04%

3.99%

4.01%

760 or higher

N/A

3.90%

3.94%

3.96%

3.90%

3.97%

Auto Credit Score Range

Less than 1 Yr

After 1 Yr

After 2 Yrs

After 3 Yrs

After 4 Yrs

After 5 Yrs

Never/ Not in the Last 7 Yrs

600 - 639

15.26%

12.68%

12.13%

11.95%

11.54%

13.72%

11.75%

640 - 679

10.76%

9.90%

9.32%

8.59%

10.09%

9.03%

8.65%

680 - 719

7.64%

7.53%

7.22%

7.24%

6.89%

7.69%