IVA and Car Finance - Free Debt Help

 

iva car finance

Individual Voluntary Arrangements (IVAs) are popular due to their ability to benefit from lower interest rates, but some people wonder how they can buy a car on credit while on this kind of payment plan.

Any type of credit will be more difficult to obtain if you enter into an IVA. In any case, it is certainly possible to find a loan that accommodates your unique financial needs, if you can afford the cost of a car alongside your monthly payments.

Aside from learning what car finance is, you'll also learn how an IVA impacts
getting a car finance agreement, as well as the options people with IVAs have available to them.

What is car finance?

Buying a vehicle with car finance is a process in which you make payments over an extended period of time. When you do not have enough cash to purchase a new car outright, you may want to consider a finance agreement.

The process of financing a car involves borrowing money from a lender and making monthly payments to pay off the whole cost of credit. You can either decide to purchase the vehicle outright or return it and go elsewhere at the end of your car finance agreement, provided you keep up with your payments.

Personal loans, PCPs, and hire purchases are all types of car financing options. Valid driving licenses and good credit scores are required.

If you are struggling with debt, it is harder to find a suitable car loan plan that assures creditors that you can afford the total amount you owe over the course of your credit agreement.

Does an IVA affect car finance?

Any kind of borrowing is affected by an IVA. Consider your agreement before approaching lenders about financing a car if you need one. You should also consider the terms of your agreement before approaching lenders.

Insolvency Practitioners (IPs) typically require permission from clients in an IVA before they are allowed to obtain credit above £500 - so if you want car loan approval, you will need their permission.

When getting car finance, it is very important that you obtain the permission of your Insolvency Practitioner. In this case, your Individual Voluntary Agreement may be terminated, as you will be in breach of its terms.

Car finance - What happens during an IVA?

As part of your Insolvency Practitioner's determination of whether your car finance is reasonable, they will take into account your income and expenses, as well as your budget.

Getting approval from your Insolvency Practitioner

The IP will likely approve your application if you are willing to commit to a car finance loan based on your financial needs.

In contrast, since IVAs require a significant amount of your disposable income to be paid towards debts, you may not have enough income to cover a monthly car payment plus an IVA.

Impact on your credit rating

An Individual Voluntary Agreement is a form of insolvency, which means the details are recorded on your credit report and on the formal Insolvency Register.

You will lower your credit score and appear to have a history of bad credit, making mainstream lenders apprehensive about extending you a loan.

You will also be limited to certain types of car finance if you are in an IVA on top of affecting your credit score.

What car financing options are available?

A new car can be financed in several ways. Those on an IVA can choose from the following forms of financing, although some are easier to manage than others.

Can I get a Hire Purchase during an IVA?

Hiring a car through Hire Purchase (HP) involves paying a deposit upfront and spreading the rest of the costs over several months. Your vehicle will be yours once the final payment is made under an HP agreement.

APR, or annual percentage rate, is charged on HP loans. Your annual percentage rate (APR) represents how much interest you will pay on top of your borrowing. It depends on the lender whether the APR is fixed or variable. HP agreements have a total cost of credit comprised of the vehicle's purchase price plus the APR.

Hire Purchase plans with IVAs are possible, but there are challenges involved.

You may be forced to use public transport while you're on an IVA in order to save money since your Insolvency Practitioner will be looking at how much you're paying toward the plan.

What about PCP or a lease?

Leasing or PCP is similar to hire purchase. A personal contract purchase (PCP) is similar to an HP, where you place a deposit on the car and make monthly payments for a fixed period of time.

Unlike HP, however, unless you make a balloon payment towards the vehicle, you do not own it. Buying your car outright will require you to pay a balloon payment at the end of the plan.

Typically, the lump sum represents a large amount of money, and the lender decides how much it should be based on the actual value of the vehicle once it is sold.

Getting a PCP deal for IVA holders is similar to getting one for HP agreements. As you do not own the vehicle and will not do so until the agreement ends, your Insolvency Practitioner may recommend a cheaper alternative or terminate your agreement early.

Personal loans are allowed for car purchases?

Personal loans are slightly different from car loans. IVA arrangements include cars purchased with personal loans. The car is yours, so you must maintain payments on it if you wish to keep it.

During a Chapter 13 bankruptcy, you may find it harder to get a personal loan to finance a car purchase. You may need to seek out a specialist lender because mainstream lenders aren't as willing to lend to you if you have an IVA on your credit history.

Can people with bad credit get car financing?

It is possible to get car finance with a poor credit score through companies that specialize in providing such services. People with bad credit and debt problems are targeted by businesses like Red Potato and Moneybarn.

There is no doubt about their appeal. Car finance is available to customers regardless of their credit history:

• It is an IVA

• CCJs (County Court Judgments)

• Bankruptcy has been declared for them

• Deposits cannot be raised

However, it isn't advisable just because it's possible. If you have a poor credit history, you may have a hard time obtaining financing from lenders like these.

CCJs, for instance, prevent you from getting financing anywhere else, so a specialist lender knows you can't get it elsewhere. You'll pay more for financing your vehicle if you have a CCJ because they'll use it to raise your premiums.

How will an IVA affect my credit rating?

The fact that you won't be able to access credit will not deter you from considering an IVA if you think it's the right solution for your debt.

Creditors will assume that you have not fully repaid your debts in the past if you needed an IVA to address your debt problem.

The short-term impact on your credit score might discourage you from using an IVA, but in the long run, it shouldn't.

With a little patience and a little writing off of your unaffordable debt, you can rebuild your credit score and have a much better relationship with creditors in the long run.

Will an IVA take my car?

Though you may wish to purchase or maintain a car during your IVA, it can be taken from you in certain circumstances.

With an IVA, you repay your debts by living within your means. You put as much money as you can afford towards the repayment of your debts. Depending on the value of your vehicle, your IP may ask you to sell it. You would then have to buy a cheaper one and use the rest to pay off your IVA.

Do I need car finance during an IVA?

Car finance should be considered carefully if you are in an IVA. Certain people, however, must have a reliable vehicle to do their jobs, so purchasing one outright may not be feasible. A car finance loan might seem like the only option in this situation.

The money you save by avoiding a car is definitely worthwhile if you can manage without one temporarily. If you end your IVA before your loan is due, you'll be able to purchase a car outright with the funds you have.

 

During my IVA, should I buy a used car?

Buying a used car is another alternative to financing. A new car's value plummets immediately after it leaves the showroom, and you can take advantage of this by buying a used car.

Shopping around is a good idea if you need credit to make such an acquisition. It is best to shop around if you need credit to purchase a car in this way. Consider contacting a credit union, as they are well known for providing loans to people who otherwise would not qualify.

Can I get car finance after an IVA?

Upon making your final payment, you will have your IVA information removed from the Insolvency Register. You may see it on your credit report for a long time - around a year depending on the length of the IVA. Your credit score may be temporarily affected by this.

It is still challenging to find a lender that fits your needs, even though you no longer need permission to apply for credit. It would be best to wait until after you have rebuilt your credit score before applying for car finance, in order to get better rates.

A desperate need for a car, however, makes this an impossible option. Getting in touch with different lenders can be beneficial just like during an IVA. Trying to find a company that will approve your application can be difficult. Credit unions may be able to help.

Where can I get more information on car finance and IVAs?

Many people are struggling with debt but still, wish to own a car. You can speak with Free Debt Help if you need a debt solution and find yourself in that situation.

Customers can get assistance from our customer service team with IVA-related queries, such as choosing the right IVA company, understanding how an IVA affects homeowners, and many more.