If you’ve entered into an IVA (Individual Voluntary Arrangement), you may be wondering if it will affect any applications you make for car finance.
While an IVA can be an important lifeline for many, it does make accessing other lines of credit challenging, even after you’ve paid it off.
However, that isn’t to say you won’t be able to get car finance while in an IVA. You’re halfway there if you can afford the monthly car payments alongside your individual voluntary agreement.
This article will help you with the other half – namely, how to navigate applying for car finance while in an IVA and how to choose a suitable lender, and it will answer the question: will an IVA affect car finance approval?
What is an IVA?
An IVA is often a tempting route for people grappling with unmanageable debt. It’s a court-ordered debt solution managed by an insolvency practitioner (IP) and a means to avoid bankruptcy.
An IVA freezes your debts and allows you to pay them back to your creditors at a rate that’s feasible for you.
Typically, a portion of your debt gets written off, and you pay the rest either in one lump sum or over a period of years.
An IVA is a legally binding agreement between you and your creditors, with a payment plan that is agreed upon by both of you.
You pay your debts to your IP, who will communicate with your creditors and split the money between them.
As long as you stick to the IVA payment plan, your creditors can not take legal action against you or chase you to pay your dues.
What Is Car Finance?
A car finance agreement allows you to purchase a car and pay it off over the course of months or years.
Car finance agreements are typically used when people need a car but can’t afford to buy it outright.
In a car finance agreement, you borrow money from a lender to cover the cost of the car and pay it off in regular instalments.
Usually, you’ll have to pay a lump sum deposit to a lender and then begin regular payments.
Depending on the type of car finance loan you have, once you’ve paid it off, you’ll find yourself in one of three scenarios: you’ll either own the car outright, have the option to make one final payment and own the car, or will have to return it to the dealership, where you can start a new agreement or go elsewhere.
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I Have an IVA. Can I Get Car Finance?
Yes, you can. However, the process is a lot more complicated! An IVA can impact your credit score, so your chances of finance approval are lower than normal, but not impossible.
The first step in this process is to get approval from your insolvency practitioner – they need to approve any line of credit worth over £500.
This may not be granted if your IP deem paying back your existing debt the priority – they don’t want you to get into more debt if you can’t afford it.
Car finance lenders can see you’re in an IVA, and your history of repayments will factor into how they assess your request.
It’s also worth noting that some lenders refuse anyone with an IVA. You might need to use a car finance company that accepts borrowers with IVAs.
How Can I Get My Insolvency Practitioner’s Approval
There are two key points you need to convincingly make to your IP that can help your chances of approval.
- Prove to your IP you need a car
- Prove to your IP that you can afford car finance
Proving to your IP that you can carry on paying your debts and other bills is vital, as is proving that you need a car.
You must convince your insolvency practitioner that having a car is necessary – perhaps you need it for work, or it works out cheaper than public transportation.
Proving that you can pay your car finance without any risks will put you closer to car finance with an IVA.
What Are My IVA Options?
If you’re looking for car finance options in an IVA, there are several routes available to you:
Hire Purchase Car Finance
In a hire purchase agreement, you pay for the car in monthly payments, usually over three to five years.
This is a popular option for many people in IVAs, although you may be required to pay a deposit if you have bad credit.
One of the better things about this form of finance is that you gain ownership of the car when you reach the end of your agreement.
Personal Contract Purchase (PCP)
PCP finance is a cheaper option than hire purchase – payments are typically smaller as you’re only paying for the car’s depreciation, not its full value.
At the end of the agreement, you can either return the car, pay a one-off payment (a “balloon payment”) to keep and own the car or use the car as part exchange towards a new credit agreement.
As a part exchange, you can swap your car for a new make and model and use your car’s equity to reduce the new monthly payments.
Personal Loan
A personal loan is an alternative route that not many people will be able to go down, as they’re not easily approved.
Personal loans are paid directly to you, and you pay for the car in full, taking complete ownership.
A loan does pose more risk, and IPs are less likely to approve them; they’re also not good options for people with a bad credit score or a poor credit history.
Personal Contract Hire
Personal contract hire (PCH) car finance is similar to a lease contract. This option is suitable for people in an IVA with a smaller budget.
You will have substantially lower monthly payments; however, with a PCH, you don’t have the option to buy the car you’re financing.
PCH car finance is usually the lowest price option on this list, as you’re only paying for the use of the vehicle.
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
Finding A Lender
When you’ve acquired your approval from your insolvency practitioner, the next step is to find a lender that will offer car finance to someone in an IVA.
IVAs affect your credit score, and you’ll want to keep this in mind while looking at lenders. Some lenders may make you pay a higher interest rate for IVA car finance.
Compare lenders, as not all rates will be the same. You may have to look at car finance companies if you struggle to get an agreement elsewhere.
There are also credit car finance options for people with a poor credit history.
Once you’ve settled on a lender, apply, and they’ll perform either a soft credit check or hard credit check on your credit file to determine your eligibility.
They’ll be able to see you have an IVA, and while it may result in some refusals, some lenders see an IVA as proof of your financial discipline and commitment to paying.
I Have a Car on Finance, Can I Keep It if I’m Entering an IVA?
If you’re entering an IVA and have a current car finance agreement, you must inform your insolvency practitioner.
Usually, you will be able to keep your car. However, your IP will look at your circumstances and finances and sometimes may not allow you to keep it.
If your car is a necessity, you may be able to keep it. However, if your car finance is expensive, IPs will make you find a cheaper option.
It’s not uncommon for IPs to view public transport as a more affordable alternative than a costly finance agreement.
If you’ve taken a personal loan out for car finance and are entering an IVA, your loan will be included in the IVA.
You will already be the car’s legal owner, so your insolvency practitioner may suggest you sell it or downgrade and pay the excess money into your IVA if it’s worth a lot, although this is rare.
Applying for Car Finance After Completing An IVA
An IVA will cause your credit score to go down, which can affect your eligibility for car finance. However, time plays a crucial role in improving your credit score.
As long as you make payments to your IVA and don’t get into further debt, your credit score will look better when you complete your IVA than it did throughout.
It will only improve with time as lenders pay more attention to your recent credit history.
It will be easier to obtain car finance after you have a complete IVA on your credit file.
However, it’s important to remember an IVA will still show on the insolvency register (a publically accessible record of people that have used insolvency services) for around three months following completion.
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How Long Will An IVA Affect My Credit Score?
The good news is that having an IVA on your credit report is not permanent and will be removed six years from the day of approval.
Once the IVA is removed from your credit report, you can work on improving your credit score.
If you’re not in a hurry to buy a car, it’s a good idea to spend some time working on building your credit score before applying for car finance.
While it might not be a quick process, the money you’ll save will make it worth your while.
Methods to improve your credit score include:
- Making creditor payments on time.
- Joining the electoral roll.
- Only applying for credit occasionally.
It can also be useful to approach a credit union. They’ll help you find a suitable lender and can assist you in obtaining a car finance loan that would have been out of reach if you were applying on your own.
IVA Car Finance – A Summary
If you want to get a car on finance while in an individual voluntary agreement, there’s good news: it is possible.
Although taking out an IVA does make it harder to get car finance, there are a deal of car finance programmes and lenders out there that are affordable and accessible to people in IVAs
Navigating car finance in an IVA will require a lot of work – you should have a thorough understanding of your IVA and the car finance options available to you, and you will need to remain in communication with your IP throughout the process. If you can convince your insolvency practitioner that a car is necessary, finance options could be within your grasp.
Choosing between an HPH, PCP, personal loan, or PCH will require you to take a detailed look at your IVA terms, finances, and any finance agreements.
There are benefits to each option, and they all run a different price.
If you’ve read our guide, you’re in an excellent position to start applying for car finance.
Be transparent with your insolvency practitioner, show them that getting a car is essential for you, and demonstrate that you can manage the monthly payments.
Don’t rush into any decisions – take your time and way up the pros and cons of each option. After all, the goal is not just to get a car but to get a car without jeopardizing your financial stability.
