When it comes to managing finances, balancing the need for a vehicle with the responsibility of an Individual Voluntary Arrangement (IVA) can seem daunting. You may be wondering, “Can I get car finance whilst being in an IVA?” The answer is not as straightforward as one might hope, but it’s also not entirely impossible. This article explores the topic of IVA car finance, aiming to shed light on options, eligibility, and repayment processes for individuals who find themselves in this very situation. Whether you’re currently in an IVA, considering entering into one, or perhaps helping someone navigate through this, understanding the intricacies of car finance in this context can make a significant difference. The goal is to provide you with a detailed guide that helps you make informed decisions on securing a car finance deal while under an IVA. So, buckle up as we delve into the nuances of IVA car finance!
- Understanding an IVA
- What is IVA Car Finance
- Possibility of Getting Car Finance with an IVA
- Car Finance Options for Individuals with Bad Credit
- How to Improve Chances of Getting IVA Car Finance
- Frequently Asked Questions (FAQ)
Understanding an IVA
An Individual Voluntary Arrangement, or IVA, is a formal and legally binding agreement between an individual and their creditors, designed to help manage debt repayments. It’s overseen by an insolvency practitioner (IP), a licensed professional who takes on the responsibility of assessing your financial situation, dealing with your creditors, and distributing your payments.
The introduction of an IVA can dramatically impact your credit score. Because it’s a form of insolvency, it signals to lenders that you’ve had difficulties managing your debts in the past. This could potentially make it more challenging to secure any form of credit, including car finance.
However, while an IVA might indeed create hurdles, it’s crucial to remember that every finance company assesses applications differently. Various factors like your current disposable income, the size of your deposit, and the affordability of monthly repayments can influence your chances of securing a car finance deal. It’s also important to remember that as you progress through your IVA term and demonstrate consistent payments, your credit rating can gradually improve.
In the next section, we will delve deeper into how an IVA directly impacts your options when it comes to car finance.
What is IVA Car Finance
IVA car finance refers to the process of securing a loan or finance agreement for a car while you are in an Individual Voluntary Arrangement. The main question most people under an IVA ask is, “Can I get car finance while on an IVA?” The simple answer is, yes. But it’s a bit more than that.
Securing car finance whilst under an IVA is not straightforward, given that finance companies usually perform a credit check before approving a finance deal. As IVAs significantly impact your credit score, the chances of getting approved might seem slim. However, it is not impossible. It’s essential to remember that the insolvency practitioner supervising your IVA will need to provide written approval before you can take on new credit over a certain amount.
So, how does it work? Firstly, you’d need to discuss your need for a car with your insolvency practitioner. You must be able to prove that the car is necessary, for instance, for work or family obligations, and that public transport isn’t a viable alternative. Your insolvency practitioner will then determine if the monthly repayments are affordable and if it fits within your existing IVA budget without compromising your ability to meet your monthly IVA payments.
If the insolvency practitioner agrees that a new car finance agreement is reasonable and necessary, they will provide written approval. You can then approach lenders who specialise in bad credit or IVA car finance. It’s worth noting that these lenders’ rates may be higher than standard lenders due to the perceived risk involved.
In the following section, we will explore the different car finance options available to individuals under an IVA.
Possibility of Getting Car Finance with an IVA
The subject of obtaining car finance while under an IVA often comes fraught with uncertainty and misconceptions. Let’s set the record straight and delve into what is and isn’t possible.
Can I obtain car finance while under an IVA?
As mentioned earlier, the answer is yes, but it isn’t as simple as it would be without an IVA. Your insolvency practitioner (IP) has to approve any credit over £500 you take on during your IVA. This is because the central principle of an IVA is to manage and reduce your debt, not accumulate more. Your IP will carefully consider your circumstances, looking at the necessity and affordability of the car finance. If the car is essential for you to get to work or fulfil other important responsibilities, and the finance agreement doesn’t strain your budget, they may give you the go-ahead.
Will it be more challenging to get car finance with an IVA?
Undeniably, an IVA on your credit file will make obtaining car finance more difficult. Mainstream lenders are less likely to approve you due to the risk attached to your credit profile. However, there are specialist lenders and car finance companies that cater to people with poor credit history, including those under an IVA. Keep in mind that these lenders often charge higher interest rates to offset the potential risk of lending to individuals with poor credit history.
Can an IVA lead to vehicle repossession?
A common misconception is that entering an IVA will result in vehicle repossession. This is not necessarily true. If your vehicle is under finance and you are keeping up with the payments, and these costs have been factored into your IVA, there shouldn’t be a problem. However, if you are struggling with the payments, it’s important to discuss this with your IP as soon as possible to find a solution.
Remember, every individual’s situation is unique, so it’s essential to discuss your specific circumstances with your IP. In the next section, we’ll discuss the available car finance options for individuals with an IVA.
Car Finance Options for Individuals with Bad Credit
Bad credit, be it due to CCJs, defaults, or IVAs, need not deter you from exploring car finance options. There are various routes you can consider, each with its pros and cons.
Hire Purchase (HP)
A hire purchase agreement allows you to hire a car and eventually own it. You pay a deposit upfront (usually around 10% of the car’s value) and make monthly payments for a fixed term, usually between 12 and 60 months. The car belongs to the finance company until the final payment (and an optional purchase fee) is made. As the lender can repossess the car if you default on payments, it’s less risky for them, making HP a viable option for those with poor credit.
Personal Contract Purchase (PCP)
PCP, or Personal Contract Purchase, is a vehicle finance arrangement similar to HP. It offers lower monthly payments and includes a large ‘balloon payment’ at the end of the term for car ownership. With PCP, you have the option to return the car or part-exchange it for a new one when the finance agreement ends. However, securing PCP can be more challenging with an IVA or bad credit due to credit checks.
Personal Contract Hire (PCH)
PCH is a form of long-term rental in vehicle finance. You pay a fixed monthly amount for a finance arrangement to use the car for an agreed period and mileage, after which you return the car. PCH doesn’t involve a credit check, making it a potential option for individuals with an IVA. However, you will not own the car at any point in the finance agreements.
Bad Credit Car Finance
Some lenders specialise in car finance for people with bad credit, including those with an IVA. These lenders tend to charge higher interest rates due to the increased risk. Always check the APR (Annual Percentage Rate) to understand the total cost of the loan, including interest and fees.
Guarantor car finance is a type of loan where another individual co-signs the credit agreement, promising to make the repayments if you can’t. This can be a good option if you have a willing guarantor with a good credit score.
When considering vehicle finance options, it’s crucial to carefully evaluate which finance agreements are right for you. Remember to consider not just the monthly payments, but also the total cost of the loan. Make sure that the loan is affordable within your current financial circumstances and IVA terms. If you are unsure, always seek advice from your insolvency practitioner or a financial advisor.
How to Improve Chances of Getting IVA Car Finance
Securing car finance while under an IVA can seem challenging, but with the right steps, your chances of approval can improve. Here are some tips to help you on your journey:
Maintain a Healthy IVA Track Record
Make sure you keep up with your IVA payments and meet all the agreed terms. Showing that you are responsible and committed to managing your debts can work in your favour when applying for car finance.
Seek Advice from Your Insolvency Practitioner
As they understand your financial situation best, your insolvency practitioner can provide tailored advice about your likelihood of obtaining car finance and may help you navigate the application process.
Save for a Larger Deposit
Finance companies usually ask for a deposit when you take out a car finance deal. The more significant the deposit you can put down, the less you need to borrow, and hence, the lower the risk for the lender.
Improve Your Credit Rating
Even with an IVA, there are steps you can take to boost your credit score. For instance, make sure you’re on the electoral register, review your credit report for any errors, and try to pay off any outstanding debts outside of your IVA.
Consider a Guarantor Loan
If possible, consider finding someone who trusts you to be a guarantor. This means they’ll be responsible for covering the repayments if you’re unable to. This can provide reassurance to the lender and increase your chances of approval.
Be Honest and Realistic
While it may be tempting to stretch the truth a bit to increase your chances of approval, honesty is always the best policy when applying for finance. Misleading information can lead to severe consequences, including rejection and potential legal action. Apply for what you can afford and not what you aspire to have.
Different lenders have different lending criteria and will view your circumstances differently. Don’t get disheartened if one lender turns you down. Look for specialist lenders who deal with people in IVAs or with poor credit histories such as Zuto or Moneybarn
Remember, while getting car finance with an IVA is possible, it’s essential to ensure that the repayments are affordable and won’t put you in further financial difficulties. Your insolvency practitioner can help guide you through this process and make sure that any new credit agreement works within the confines of your IVA.
Frequently Asked Questions (FAQ)
Can I get car finance with an IVA?
Yes, it is possible to get car finance with an IVA. However, it can be more challenging due to the impact of the IVA on your credit score. You may also need permission from your insolvency practitioner.
How does an IVA affect my credit score?
An IVA can significantly impact your credit score. As a form of insolvency, it indicates to lenders that you’ve had difficulty managing your debts. It remains on your credit file for six years from the start date, making it harder to access certain types of credit, including car finance.
Can I improve my credit score while under an IVA?
While your credit score will likely be impacted during the IVA term, you can start to rebuild it. Ensure you’re on the electoral register, review your credit report for any errors, and continue to meet all your credit agreements.
Do I need to inform my insolvency practitioner if I want to apply for car finance?
Yes, it’s crucial to keep your insolvency practitioner informed. They will need to give their permission for you to take on new debt over a certain amount while you’re in an IVA.
What if I can’t keep up with the payments on my car finance agreement while under an IVA?
If you’re having trouble making payments, it’s important to contact your insolvency practitioner as soon as possible. They can provide advice on your next steps. You should also contact the finance company to discuss your situation.
Remember, it’s essential to consider the long-term financial responsibility before entering into any car finance agreement while you’re in an IVA. If you’re uncertain about anything, you can always reach out to Become Debt Free at 0800 169 1536 or leave an enquiry on our website. As licensed insolvency practitioners, we’re here to guide you through the complexities of managing debt.
In conclusion, securing IVA car finance is not without its challenges. However, with a clear understanding of what an IVA is, its implications, and the car finance options available for individuals with bad credit, the journey can be less daunting. Whether it’s understanding how to improve your credit score or navigating through different car finance options, every step you take can bring you closer to your goal of owning a car while being under an IVA.
While managing debt and maintaining financial responsibilities might seem overwhelming, remember that you’re not alone in this journey. There are professionals and services available to guide you every step of the way.
At Become Debt Free, we’re committed to helping individuals navigate through their debt challenges. As Licensed Insolvency Practitioners, we offer expert advice on IVAs and other debt solutions.
If you’re struggling with your debts and considering an IVA as a solution, we’re here to help. Contact us at 0800 169 1536 or leave an enquiry on our website to discuss your options. Your journey towards becoming debt-free could start today.
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