When considering which debt solution is best suited to your individual circumstances, you’ll no doubt be considering how it affects your future plans.
This understandably includes the impact on lending and whether you can obtain further credit whilst on debt management plans.
In this article we discuss how the effects a debt management plan has on future lending and what options are available to you across the duration of your DMP.
Am I Allowed To Apply For Credit Whilst On A DMP?
In short, yes you can.
A debt management plan is an informal arrangement and therefore does not bind you to stricter terms which write off debt, like an Individual Voluntary Arrangement.
Although you can obtain credit, it is important to know that it will be significantly more difficult to access due to the impact a DMP has on your credit file.
This may mean that the options available are high interest options, that could leave you in a challenging position once more.
A DMP provider will likely suggest it is not advisable to apply for further lending whilst trying to get your financial situation back on track.
This is because further lending and therefore further monthly payments to keep on top of, can create financial pressures which could mean missed payments on priority debts such as council tax.
However, understandably further lending is sometimes a necessity when life throws unexpected obstacles in your way, such as car repairs.
There are lending options for poor credit scores which can be accessed, but it is worthwhile speaking to your DMP provider beforehand to see if there is anything that can be done within your plan to help.
If you’re unsure about which one is best for you and your circumstances, click below to find out more.
Can I Get Car Finance On A Debt Management Plan?
Yes, it is possible to get car finance is allowed whilst on a debt management plan.
Essential hire purchases such as a car finance agreement can often be classed as a necessity, with most households requiring their vehicle for day-to-day living such as work commutes or the school run.
Like any other credit agreement whilst on a debt management plan, it will be more challenging to obtain good rates due to a poor credit score and the credit history you will currently have.
Make Sure Your Car Finance Payments Are Manageable
Now you have a manageable payment plan in place, the last thing you need is to overcommit to large car payments and find yourself struggling.
Ensure that the monthly repayments required for your new vehicle do not mean you will have to miss payments elsewhere.
Speaking to your debt management provider can help your understand your income and expenditure more clearly, and define an amount you can afford to the car finance agreement.
Be Mindful of Bad Credit Score Finance
Rejection from a few mainstream lenders can make you happy to go with anyone who will finance your new hire purchase.
Because of your current credit rating, there are some lenders who will charge an extortionate amount to offset the risk of your credit history.
Sometimes, this could mean a finance deal where you are paying for the car twice over.
If you must get car finance, be sure to shop around a few places to ensure you are getting the best rate possible with your credit rating.
There are reasonable specialist lenders out there, and our advisors can suggest some companies who may be able to help to you.
The Different Types Of Car Finance
When looking at car finance, you will be met with a few options about how you can obtain your new vehicle.
In this section we’ll discuss in depth each type of car finance, so you can make an informed decision.
Hire Purchase Agreements and Debt Management Plans (DMPs)
A hire purchase agreement is a financial agreement for acquiring a car, with payments spread over a predetermined period, typically two to four years.
Once the final payment is made, and provided that regular payments have been maintained, the vehicle becomes your own.
Securing a hire purchase agreement can be achievable even when you’re under a debt management plan, although it will be more difficult due to the DMP’s potential impact on your credit score, which could lead to refusals from mainstream car finance companies.
Personal Contract Purchases and DMPs
A personal contract purchase is another form of car financing where you make monthly payments over a set term, again usually over two to four years.
Unlike a hire purchase, you do not automatically own the car at the end of the agreement.
At the end of a PCP, you have three options:
Pay a final lump sum to purchase the car outright.
Return the car to the dealer.
Trade in the car for a new finance agreement.
Obtaining a PCP while on a DMP is possible, but you may encounter higher interest rates due to the impact of the DMP on your credit score.
Car Leasing with a DMP
Leasing a car is an alternative to buying one outright or on finance.
In a lease, you rent the car for a set period and return it at the end of the lease with no further commitments.
Leasing can be a practical option for those under a DMP, offering fixed monthly payments that are often lower than those associated with purchasing.
However, because there is no ownership at the end of the lease, it may not be considered the most financially sensible option, particularly if the lease payments are substantial and impact your disposable income.
Obtaining Car Finance – Your Credit File
Finding car finance whilst having a DMP and a poor credit score will likely affect your options for car finance.
However the market has evolved from previous years, with a variety of lenders who specialise in providing car finance to customers with adverse payment history.
Although the interest rates from these specialised lenders may be higher, they have a good understanding of the financial challenges associated with debt solutions and are often more willing to provide finance to individuals in these situations.
Can I Get A Loan With On A Debt Management Plan?
Yes, getting a loan is possible to be obtained whilst on a debt management plan.
However, it is always worth considering is it necessary whilst on reduced monthly payments to your other debts.
Obtaining further credit puts more strain on your financial commitments, and could leave you short with other living costs.
As with car finance, the impact of your credit file with have an effect on the interest rates that can be obtained.
Personal Loans When On A DMP
Unsecured personal loans will likely be difficult to obtain whilst on a debt management plan, however some people may still find there is still a small pool of potential lenders.
Loan products such as guarantor loans and payday loans fall within this category.
If you are looking at obtaining personal loans whilst on a DMP plan, it is imperative to consider whether it has the ability to create financial hardship to you further down the line.
Sometimes, a loan may be required for an essential purchase where you do not have the money required. Maybe it’s a washing machine or a new bed that’s needed.
If you feel there is no other option but to obtain a personal loan, ensure that you check rates with a few lenders.
Bad credit loans can fluctuate massively with interest rates, so it is worth scouring the market to ensure you obtain the best deal.
The lesser interest rate usually means less amounts in repayments, meaning your other bills are more manageable.
Secured Loans When On A Debt Management Plan
If you are a homeowner, then you have been considering a secured loan whilst on your DMP.
Secured loans are obtainable whilst in a plan with a DMP provider.
Even though your credit report will have had a negative impact, secured lending could still be a possibility because of the security that is provided.
Secured loans are typically easier to obtain than unsecured loans, because if you cannot keep up with the monthly payments your property can be repossessed to recoup the money owed.
When considering this kind of lending, it is extremely important to take a thorough review of your disposable income and whether it is going to be affordable.
As stated earlier in this section, missing monthly payment amounts can leave your home at significant risk of repossession.
If you’re unsure about which one is best for you and your circumstances, click below to find out more.
Can I Get A Credit Card On A DMP?
Credit cards are permissable on your debt management plan, but not advisable unless for the use of an emergency.
Revolving credit such as credit cards create a false illusion of more money available, and create a bad cycle of just repaying minimum debt amounts that provide no benefit your financial situation and adds to your outstanding debts.
Cards for bad credit scores (often called credit builder cards) can often be available to people on debt management plans, however once the limits have been maxed it can become troublesome to bring balances down.
But, we all know that life can take some unexpected turns. Some people find solace in having a credit card for emergency use, that comes in handy with car repairs for example.
Credit cards and store cards sometimes deliver interest free periods also that can give some breathing space, but be mindful when that period ends.
Do I Actually Need Further Credit?
Before taking out any of the above credit agreements, it’s important to take a step back and evaluate whether there are other routes that can be considered.
For example, understandably in the midst of a problem such as a appliance breakdown, our thoughts may not be as rational or ‘with a clear head’.
Taking a step back and identifying all solutions to your problem can sometimes prevent further lending, and therefore keep your monthly payment commitments down.
DMP Payment Breaks
If you speak to your DMP provider, it may be possible to delay or postpone a monthly payment so you can deal with the unexpected expenses.
Please be aware however, that creditors may not agree to this and can continue to charge further charges and interest.
A Payment break from your debt management plan can provide temporary relief, but it also prolongs the term of when you expect to be debt free.
If you feel this solution may be an option, speak to your debt advisor for further information to discuss your options.
If you’d like to speak to one of our trained debt advisors about your debt, click below to find out more.
Can You Get Credit While On A Debt Management Plan (DMP) – Conclusion
As discussed throughout the article, credit in many different forms can be obtained during your debt management plan.
However, it is extremely important that the risks involved with further lending, and the type of lending available is considered wisely and discussed with your DMP provider.
Theoretically, credit should only be taken out whilst on a debt management plan if you deem it necessary.
Lending money irresponsibly for things such as gambling or other areas deemed as ‘luxuries’, will only cause further financial difficulties and potentially cause your debt management plan to fail.
If this scenario occurs, it could cause further stress and anxiety as your creditors who are no longer being repaid resume contacting you.
However, we all experience times in our lives where unexpected scenarios occur that cannot be accounted for financially.
Unexpected car repairs, broken down appliances or parking and court fines could all mean that further lending is not a choice, but a necessity.
We’ve explained the pitfalls of bad credit loans with their high interest rates, and the risks of missed payments on secured lending.
Please be aware that each lending product comes with their own pros and cons, and if you are going to have to consider lending it is important to weigh up a few key points;
The interest rate being offered
The amount to be repaid each month
The duration of the agreement
Those three factors will determine how much is going to be paid in total, which sometimes can make what seemed like a wise choice no longer appealing.
Speak to your DMP provider
As an FCA licensed debt management company, it is always advisable to speak to your DMP provider who can guide you through your options when considering applying for additional finance.
Sometimes, they may even be able to provide alternative solutions to prevent the need for further lending.
Life is a forever evolving reality, and debt solutions are mindfully flexible to ensure you can stay on the right track to debt freedom.
If you require information and advice on the debt solutions available to you, call our friendly team today on 0161 884 4208.