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.
Finding car finance with bad credit
If you had entered an IVA or you just had poor credit history 10 years ago, you would have likely found no finance companies were willing to consider you for car finance.
However, fast forward a decade and there are now many specialist lenders providing car finance to customers with a bad credit rating.
Whilst the interest rate may be higher than with a mainstream lender, the main advantage of using specialist lenders is that they understand the financial challenges caused by a debt solution and are more likely to be willing to work with you.
Additional specialist lender checks
As responsible lenders, a car finance company will likely take more of a keen interest in your income and monthly outgoings once aware of your individual voluntary arrangement (IVA).
As you will be deemed a higher risk due with your bad credit history, they will want to assess your affordability in making monthly payments.
These are all normal parts of the process when trying to obtain credit for vehicle finance, and it’s nothing to be downhearted about.
Are there any IVA car finance lenders?
Whilst there are no car finance lenders that specifically deal with IVA customers, there are lenders who are familiar with customers who have entered such arrangements.
Car finance lenders such as MoneyBarn are known to assess IVA customers on a case by case basis.
Can I get car finance after my IVA?
Yes, you can get car finance after your IVA. Although your details will be removed from the register immediately after your first payment, it will still show on your credit file for up to 12 months after completion.
During this time although not as difficult as it was in the past, it can still be difficult to obtain mainstream car finance at a competitive rate.
Wait a little longer before taking vehicle finance
If you can wait a little longer for your credit report to update, then you could have access to a greater choice of finance providers making it easier to find a suitable lender.
However, we understand that sometimes waiting may not be an option. Your car may have broken down or your current car finance term may need to be renewed.
In this instance, and you have been refused finance by mainstream lenders, you should seek out a specialist company that specialises in bad credit car finance.
Although not known for being for providing the best finance deal, certain credit broking companies specialise can help customers with a bad credit rating in accessing credit.
These companies have a network of lenders they work with who are willing to provide finance, albeit at a higher rate than what would be offered to customers with an excellent credit history.
IVA and car finance – Conclusion
An IVA does not prevent you from being able to continue or apply for car finance. However, as it does show on your credit report, it can reduce the list of lenders who will be willing to offer credit agreements.
In addition, it will also have an impact on the interest rate or representative APR you will be offered within car finance programmes.
Any car finance whether it be a renewal or a new agreement will require a approval from your insolvency practitioner.
They will ensure that any financial agreements are affordable and reasonable, and that it does not jeapordise your IVA plan.
When your IVA has concluded and your details are removed from the insolvency register, you will find that credit options and interest rates become more favourable as your credit score improves.
Do not be afraid to contact your IVA provider to discuss your plans.
There are always options to be discussed surrounding car finance within an IVA, and your insolvency practitioner is there to help ensure your living needs are met during your IVA term.
They will be able to advise on the best course of action to satisfy your needs and keep your IVA on track.
Speak to our expert IVA advice team
If you are thinking about entering an IVA, but are wary of the consequences on your ability to apply for car finance during the arrangement, then contact our IVA advice team today.
We are an insolvency practitioner’s firm that specialise in all things IVA, including obtaining a car on finance with an IVA.
Our team will be able to inform you of the pros and cons of IVAs which cover topics such as vehicle finance, credit rating, mortgages and other aspects that might be important to you.
We’re here to give you as much information as you need to make an informed decision that suits your circumstances. Avoid any IVA company who does not willingly answer any questions you may have.
Solving your debt issues, resolving your debt-related problems
At PennyPlan, we understand that debt is not the only problem you are facing.
It is likely that your financial problems are also causing other debt-related issues in your life, such as relationship difficulties, depression and other health concerns.
And because of this, we offer a free, confidential well-being team at your service from the moment you sign up for one of our IVA plans.
This team is made up of counsellors and mental health professionals who can provide support and guidance on a range of topics, including debt, anxiety, stress, depression and more.
We’ll get your financial and mental health all in the best shape by the end of your plan with us.
Applying for an IVA
If you are struggling with unsecured debt and are looking for a way out, then applying for an IVA could be the right solution for you.
But choosing an IVA is not a decision to be taken lightly and we will offer you information on all available debt solutions.
Our friendly money advice team will hold your hand every step of the way and ensure you have a full understanding of all possible debt options before moving forward.
