When you enter an Individual Voluntary Arrangement, also known as an IVA, you must adhere to certain rules when it comes taking out further credit such as credit cards or loans.
An IVA is a formal agreement between you and the people you owe money to, known as creditors, that allows you to repay a percentage of your debt over a period of up to six years.
As you agree to repay what you owe in monthly IVA payments the arrangement can make it more difficult to borrow money during this time.
In this article we’ll discuss whether you can take out additional credit, such as a loan, when in an IVA.
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What is credit?
Put simply, credit is borrowing money or accessing goods or services with the intention to repay at a later date.
Companies or lenders grant credit based on their confidence in you to repay what you owe along with any additional charges such as an interest rate.
Their confidence is based on whether you’re deemed to have a good credit score, also referred to as a credit rating, or not. Your credit score is a three digit rating that showcases your creditworthiness. The higher your credit score, the better your chances of securing credit such as personal loans.
You can check your score and credit report through Financial Conduct Authority approved credit reference agencies like Experian, TransUnion or Equifax.
Can I get credit, like a loan, while in an IVA?
When you enter an Individual Voluntary Arrangement you agree to repay what you owe with an affordable monthly payment.
Understandably this can limit your potential to borrow money money during the arrangement.
When entering an IVA it’s important to be aware that you won’t be able to borrow more than £500 from a lender without written permission from your Insolvency Practitioner (IP).
This includes borrowing money through types of credit such as:
- personal loans
- credit cards
- a payday loan
- borrowing money from relatives or friends
If you borrow more than £500 without permission you will breach the terms of your IVA and could risk it failing.
How do I get further credit in an IVA?
If you’re interested in further credit while in an IVA it’s important that you speak with your Insolvency Practitioner (IP) before you reach out to a lender.
Your IP will decide whether you should access credit based on the following:
- Whether it’s necessary
- How long it’ll take you to repay
- Whether you can repay the new debt on top of your current IVA payments
As already mentioned, if you don’t inform your IP about any new loan you may be in breach of your IVA and put the arrangement at risk.
It’s also important to be aware that even if your IP gives borrowing the green light you may struggle to find a lender. This is because the details of an IVA are a matter of public record and appear both on the Insolvency Register and your credit file.
Potential creditors will use credit reference agencies to search your financial history and decide whether they’re confident you can repay what you owe.
If you have what is deemed to be a bad credit score you may find that a lender may refuse your request or offer you a higher interest rate.
You should always be wary of taking on a loan with a high interest rate as it could cause your current repayments to spiral out of control.
How we helped Paige
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
Can I borrow money from relatives during my IVA?
While it may be tempting to borrow from friends and family during the course of your IVA it’s important to be aware it’s against the rules of your arrangement.
Borrowing money from those closest to you may seem like a cheaper and easier option than having a loan to pay from a high street lender but doing so could put your IVA in jeopardy.
If you skip payments and repay friends and family before the creditors listed in your Individual Voluntary Arrangement you could find yourself in more financial turmoil.
If you’re worried about covering the cost of an unexpected expense or you’re struggling with your monthly IVA payments you should speak with your IVA provider as soon as possible.
What is an IVA early settlement loan?
While many people are often interested in paying off their IVA early with a lump sum, the reality is only very few are in the position to make an early settlement offer.
If your financial situation doesn’t allow you to complete your IVA early you may consider a loan to pay the remainder of what you owe.
While being accepted for further loans may be difficult, there are some companies that can help. Organisations like Sprout Loans are known to specialise in IVA early settlement loans.
You should be wary when considering this type of loan, however. While IVA early settlement loans my shorten the length of your arrangement, they often come with high interest rates. This means the loan can cause greater financial difficulty for some people rather than help so always make sure it’s the best approach for your financial circumstances.
Always be sure to do as much research as possible and get approval from your Insolvency Practitioner before making your loan application.
It’s also important to be aware that you must be at least half way through your arrangement and up to date with IVA payments before applying for an early settlement loan.
Can an IVA affect my credit score?
A record of your IVA will stay on your credit file for six years from its start date.
In a standard 60 month IVA it will vanish from your credit file a year after your make your final payment.
When you complete your IVA you’ll receive a competition certificate. This certification provides proof that you have met the terms and conditions of the arrangement. You should share this with credit reference agencies as well as future lenders to allow you to rebuild your credit score.
Can I get loans after an IVA?
As an IVA can have a negative impact on your credit score it can be hard to get credit even after it’s finished.
If possible you should wait until the IVA has cleared from your credit file before applying for any loans, including secured loans, or unsecured debt.
However, if you can’t wait and need to access new credit sooner rather than later, speak with a local credit union rather than high street lenders.
You should also take steps to build your credit score after your IVA comes to an end. You can do this by making all of your monthly payments, such as bills or any other financial commitments, on time.
You may also consider a credit building card if your financial situation allows and the repayments work with your new proposed budget after your IVA.
Where can I find out more about borrowing money to manage debt or an Individual Voluntary Arrangement?
If you’re looking for debt advice or information about what debt solutions are best suited to your circumstances, Your Debt Expert can help.
Our team can provide support tailored to your individual financial circumstances and help you what you owe with manageable payments.