One of the common questions we are asked when someone is considering an individual voluntary arrangement (IVA) is around the topic of car finance.
It is understandable too, with more than 2 million cars being bought on finance in the UK each year.
So if you have been considering an IVA but have worries about car financing, then look no further. We’ll cover everything you need to know right here.
Can I get car finance with an IVA?
Yes, you certainly can. Although the rates may not be as competitive as if you had a perfect credit rating, there are several options available to those with an IVA.
There are now a lot more car finance lenders who cater to customers with a poor credit history than ever before. This means that, although your options may be more limited, you should still potentially find a car finance deal.
Can I get car finance for any car when in an IVA?
The answer to this is ‘within reason’. As you are in an IVA, the amount you can afford to spend on a car will be assessed by your insolvency practitioner (IP).
They will take into account things like your income and expenditure to work out what is ‘reasonable’ for you to spend. You will need to get permission from your IP before taking out any finance..
Replacing your existing car finance agreement
If you are replacing an existing car finance agreement within your IVA, the monthly car payments should be similar to or less than your previous arrangement.
Creditors and your insolvency practitioner will more than likely refuse to sanction your car finance payments if they are significantly higher than your old ones without justification.
Why is that?
You have to think about it from a creditor’s point of view.
An IVA plan offers support in reducing your monthly credit commitments and writes off any unaffordable debt on completion. Increasing your credit commitments with a car finance deal would go against this.
There are exceptions however to increasing your car finance loan from your previous arrangement. Examples of this could be a change of circumstances such as new members to the family which could make your current vehicle not fit for purpose.
Car finance with no existing agreement
If you don’t have existing car finance, it is possible to still obtain such credit whilst on an IVA.
There are certainly reasons for justification for obtaining finance like a hire purchase agreement or personal contract purchase.
One common reason we have found with our customers is when your current vehicle is no longer fit for purpose.
For example, if your car has broken down and is uneconomical to repair or you have a growing family and need a larger vehicle. You do not have the funds to purchase a new car outright, so a new credit agreement for a car on finance would likely be justified.
It is important to remember that any car finance agreement should be affordable and fit within your monthly expenditure, so as to not jeopardise your IVA plan.
If it looks like you may need to get car finance, the first step would be to speak with your insolvency practitioner. They will discuss your options on what is the best way to move forward.
Will an IVA affect my current car finance?
No, an IVA will not affect any current car finance you have in place. The monthly payments are included within your necessary expenditure to ensure your IVA, car finance and any other household bills are affordable.
What if my car finance is for a luxury car?
If your car finance payments are extraordinarily high without justification, your insolvency practitioner could ask for this to be reduced by handing the car back and looking at other options.
As mentioned, this is if payments are higher than what is deemed necessary, such as paying £1,000 on a Range Rover even though a more modest car would handle your requirements.
If we are proposing an IVA to creditors for accepting reduced repayments and writing off debt, it would be difficult to justify excessive expenditure on a car every month.
It is important to remember that if you are looking at taking out new car finance whilst on an IVA, the agreement should be affordable and not put your IVA plan at risk.
This means that it’s best to speak with your insolvency practitioner about any car finance options before putting anything in place.
Car finance options are available during an IVA
An individual voluntary technically does not prevent you from any type of car finance that can be justified to your insolvency practitioner and creditors.
However, as the IVA negatively affects your credit file, you do have a higher chance of being refused car finance from a mainstream lender.
It may be difficult to find a lender that would be willing to offer you an agreement.
Hire Purchase (HP) on an IVA
A hire purchase agreement (HP) is a type of car finance that allows you to spread the cost of a new car over an agreed period, usually between two and four years.
At the end of the term when you have made the final payment, you would own the vehicle outright providing all repayments have been made.
Hire purchase car finance is feasible on an IVA. However, due to the effect an IVA plan has on your credit file you could find yourself being declined by a mainstream car finance company.
If you’re looking at taking out an HP agreement during an IVA, you will have to justify to your insolvency practitioner and creditors that the repayments are a necessary expense.
This will be in comparison to other modes of transportation such as public transport.
Personal Contract Purchase (PCP) on an IVA
A personal contract purchase (PCP) is another type of car finance that allows you to pay monthly payments on your vehicle over an agreed period, usually between two and four years.
However, unlike hire purchase finance, you do not automatically own the car at the end of the term.
With a PCP agreement, you have three options:
1. Pay an agreed lump sum (balloon payment) to own the car outright
2. Return the car to the dealership
3. Part-exchange the car for a new one
Again, a PCP agreement is technically possible during an IVA. However, it could be more difficult to find finance providers with a low interest rate due to the effect an IVA has on your credit file.
As with hire purchase (HP), if you’re looking at taking out a PCP agreement during an IVA you will have to justify the monthly repayments as a necessary expense to your insolvency practitioner and creditors.
The insolvency practitioner may see a hire purchase as more appealing than a PCP, as it offers you the chance to own the car outright at the end of the term. This is opposed to having to make a lump sum payment, return the car or take out another finance agreement.
Car leasing when on an IVA
Leasing a car is an alternative to purchasing one outright or taking out finance. With a lease agreement, you effectively rent the car from the dealership for an agreed period.
At the end of the term, you simply hand the car back with no further obligations.
Leasing is certainly possible with an individual voluntary arrangement (IVA). It offers a fixed monthly payment where the monthly instalments are usually lower than with a finance agreement.
However, as the vehicle is not owned outright at the end of the term, it could be considered a less sensible option by your insolvency practitioner.
This is especially true if the leasing costs are very high and have a big impact on your disposable income.
