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IVA Car Finance

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IVA Car Finance – Everything you need to know

Many people in the United Kingdom enter an individual voluntary agreement. When you have an IVA, you have to stick to making monthly payments. You should also get permission before taking new credit or when your income increases.

IVAs represent the most common procedure for insolvency in the U.K. for individuals who want to get rid of their debt and get in control of their finances. If you have an IVA or have a poor credit history, you are probably hesitant to try to get a car finance loan thinking your chances are scarce.

Although getting car finance with an IVA can indeed be difficult, it is not impossible. You simply need to find a lender who will let you get car finance despite your bad credit and your IVA situation.

In this post, we will talk about how you can get car finance even if you’re in an IVA.

What Is an Individual Voluntary Agreement?

An IVA, short for Individual Voluntary Agreement, is a legally binding agreement that serves as a solution for people going through insolvency. Insolvency occurs when an individual with debt is unable to pay off their debt on time. With an IVA, you become able to pay the money you owe over a certain period.

A court has to approve the IVA while an Insolvency Practitioner has to set it up before it is completed. Then, you are able to set up a plan with your Insolvency Practitioner so you can pay your debt based on how much you can afford.

The Insolvency Practitioner will be responsible for negotiating with your creditors and taking your payments. So, you give him or her the money, while the practitioner will take a small fee from the amount, then send the remaining amount to the companies you owe money.

Generally, people who owe at least an amount of £6,000 in unsecured debt qualify for an IVA. Then, your Insolvency Practitioner will make debt payments over a period of 5-6 years.

Is Car Finance Affected by an IVA

If you need a car but don’t have the budget for it, you may consider entering a car finance agreement. But if you’re already in an IVA, you may think that this, combined with your credit history, will prevent you from making your dream come true.

As a person in an IVA, you should know that this agreement will impact any type of new debt you want to take. This includes car finance. This is why you need to make sure that you check the terms of your agreement before attempting to apply for car finance.

Generally speaking, you need to talk to your Insolvency Practitioner and obtain permission from them to obtain car finance. This always applies when you want to get credit that exceeds £500.

Although it is possible to enter a nice car finance deal without consulting your Insolvency Practitioner and getting permission first, it could be detrimental to your IVA. Simply put, you’d breach your IVA’s terms, which could lead to the failure of the IVA.

What Happens with Your Car Finance Request During an Individual Voluntary Agreement?

When you have an individual voluntary arrangement and want to enter any car finance program, your Insolvency Practitioner must give you permission first – that is unless you want trouble. The expert will try to decide whether your request should be granted or not depending on your circumstances.

Your practitioner will have to check whether you can handle your new car finance based on your income and usual expenses.

Here is what usually happens during an IVA when you want to obtain car finance:

  • Obtaining Approval from the Insolvency Practitioner

The first step you need to take is to talk to your Insolvency Practitioner about your intentions of entering a car finance agreement. They will determine whether you can afford to get car finance.

Your IP will most likely approve your request if it’s sustainable for you to get car finance.

However, there may also be cases when your IP will not approve your car finance loan. IVAs already require generous amounts of money that you need to pay every month.

In this case, getting car finance with an IVA would not be recommended as the car finance deal will also require significant sums. You would not be left with enough cash after paying off two outstanding debts.

  • Credit Rating Impact

You are in an IVA because you are insolvent. As such, this will appear on the records on your credit file, which can lower your credit score considerably.

Having a bad credit report or credit score will make lenders more hesitant to work with you, to begin with. This means they might not give you a car loan.

Sure, it’s not impossible to get car finance with a bad credit history, as some lenders may be willing to offer loans despite the bad credit. However, you will have limited options when it comes to the car finance programmes you qualify for. You may also deal with a high interest rate.

Proving Yourself to Your Insolvency Practitioner

If it’s important to you to get a new car through a car loan, you must do everything you can to convince your IP that you should take on a new car finance agreement.

The best thing you can do is take a look at all your finances, come to understand them and figure out whether you’ll be able to afford the new debt or not.

In order to convince your IP that this is a good idea, you must prove that you are able to handle these payments, but also that you truly need the car. For instance, you may need a new vehicle to be able to get to work, and getting one may be cheaper than spending money on public transport all the time.

If a new car is a necessity, then your IP might approve your car finance from a suitable lender.

Buying a Car with an IVA – What Are the Steps?

So, you’ve decided that getting funding from car finance companies is something you want to do. How do you go about it when you are in an IVA?

Here’s how you can apply for car finance with an IVA:

  1. Get an acceptance letter from your IP. This shows that the new financial agreements are affordable and that they approve your car loan application.

  2. Look for a lender that accepts people with an IVA and bad credit rating. Not all lenders are willing to accept people in this situation unless they pay high interest.

  3. Compare your lender options. See which one has the best terms and settle for that one.

  4. Send an application and wait for a response from the agencies providing car finance.

Available Car Finance Options

Getting car finance when you’re in an IVA can be quite challenging. The process is often long and confusing, especially when you have a poor credit history as well.

There are different car finance options available – you just need to know which one is right for you. To understand them better, here is what each alternative involves:

  • Personal Contract Purchase

Personal contract purchase options require you to pay a balloon payment before you get full ownership of the car when the car finance term reaches the end. Otherwise, you have to give it back. PCPs represent a type of hire purchase.

  • Hire Purchase Car Finance

With hire purchase agreements, you can simply pay for the car in small installments. However, you instantly get ownership of the car when you eventually make the final payment.

This is why a lot of people in an IVA opt for hire purchase.

  • Personal Contract Hire

When you go for personal contract hire, you are simply renting a car. You don’t actually complete a purchase.

So, once you reach the end of the term, you have to hand the car back.

  • Personal Loan

Personal loans represent a very popular option for different types of purchases, including cars. With these loans, you simply take out money from a credit union, bank, or a different kind of lender.

By purchasing the car with this money, the car belongs to you from the get-go.

Can an IVA Affect Your Credit Score?

An IVA is often the best option for people who don’t know how to deal with their debt and are looking for a debt solution. However, it can affect your credit score. So, you should be aware of this beforehand, especially if you think you might apply for new financing during that time.

Opting for an IVA is a sign that you were unable to pay off your debt in the past. As a result, your credit score may have to suffer in the short term. Still, that doesn’t mean you should avoid dealing with unaffordable debt with the help of an IVA.

Applying for Car Finance After the Completion of an IVA

Many people who are in an IVA believe that once they finish it, they will instantly have better chances to obtain car finance. While you’re no longer in debt, that doesn’t automatically mean that car finance will be served to you on a plate.

In fact, even after you are done with your IVA, you will still appear on the insolvency register for around 3 months. Besides, the insolvency will show up on your credit file and credit report for a period of 6 years following its completion.

That being said, lenders can refuse your application if they want to based on the IVA or your bad credit.

If you decide to apply for car finance after your IVA, then you will pretty much have to follow the same rules.

Boosting Your Chances of Obtaining Car Finance

Although getting car financing with an IVA is often more difficult, there are a few things you can do to boost your chances significantly. Here are your options:

  • Check Your Credit File

Taking a look at your credit file is the first thing you should do if you want to see your chances of getting accepted for a car loan. It will show you exactly what lenders will see when they analyze your credit history.

This way, you’ll instantly notice if something is wrong and you’ll be able to fix it prior to entering a new credit agreement.

  • Consider Saving for a Deposit

Before you send a car finance application, you can save some money for a deposit. This way, your lender may trust you more and may actually give you a better rate.

  • Boost Your Credit Rating

One thing that stops people in an IVA from getting car financing is their low credit rating. Luckily, you can do a few things to raise it, such as paying down all balances, getting up to date with potential missed payments, and fixing mistakes on your credit history.

Final Thoughts

Getting car finance during an IVA is possible, but you’ll have to face a few challenges, such as bad credit and your IP possibly not approving your request.

If you decide to get financing for a car during an IVA, make sure you can afford it first and that you actually need the vehicle. Ideally, you should also try to increase your credit score and save for a deposit if possible.