Money Wellness

Individual voluntary arrangements (IVA) & car finance

Car finance is an agreement that lets you buy a car without paying for it all up front. Instead, you make regular payments towards the car over a set period.

Being in an IVA, or having an IVA on your credit file, will affect your chances of getting car finance.

In this guide, we’ll look at:

  • car finance/leasing a car with an IVA
  • what will happen if you have a car on finance when you start an IVA
  • whether you’ll be able to get car finance after an IVA
  • the benefits of opting for a used car
car and coins

Can I apply for car finance during an IVA?

If you’ve started an IVA and you want to take out car finance, you’ll need to get permission from your insolvency practitioner first. While you’re on an IVA, you need to get permission from your insolvency practitioner to borrow more than £500.

If you don’t get permission, you’ll be in breach of the terms of your IVA and it may fail.

It’s unlikely that you’ll have enough disposable income in your IVA budget to cover monthly car payments. This means your insolvency practitioner will need to ask creditors for a variation to the terms of your IVA to try and get your regular IVA payment reduced.

If you really need a car to get to work or transport your children about, your creditors may accept reduced payments.

But your insolvency practitioner may well be reluctant to suggest a variation unless:

  • your IVA payments are up to date
  • you can afford the car payments as well as a reasonable monthly IVA payment

If you don’t have long left on your IVA, it may be a good idea to try and hold off getting a car until it ends. You’re likely to get a better rate on car finance if you do.

Some of the rates offered to people with an IVA are extremely high. It is not uncommon to see finance for a £5,000 car costing £10,000 in total.

Can I keep my car on finance when starting an IVA?

When you apply for an IVA, if you have a car on finance that you need for work or to transport the children about etc., your insolvency practitioner will probably include this as an essential cost in your IVA proposal.

If your current car finance deal is due to end during the IVA, your insolvency practitioner will probably state in the proposal that you plan to get another car for a similar monthly payment once your existing plans finishes.

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Can I get car finance after an IVA?

Once your IVA has ended, you’ll no longer have to ask your insolvency practitioner for permission to borrow. But your IVA will stay on your credit report for six years from the date it was agreed, so for most people it will remain on their file for about a year after their IVA ends. This may make it difficult to get a good car-finance deal.

Even after the IVA falls off your credit report, it might be worth waiting until you’ve had time to rebuild your credit score before applying for car finance. Doing this should give you access to better deals.

Can I get a hire purchase (HP) car after an IVA?

A hire purchase (HP) agreement involves putting down a deposit on a car and making monthly payments. After the final payment, you’ll own the car.

As with any type of car finance, this option will be open to you once you finish your IVA. But the best deals will be reserved for people with a good credit rating. That means, if possible, it’s worth waiting until you’d had a chance to rebuild your credit score before applying.

Can I get a personal contract purchase (PCP) car after an IVA?

A personal contract purchase (PCP) involves putting down a deposit on a car and making monthly payments. After the final monthly payment, you decide whether to buy the car outright, return it, or trade it in for a new car and PCP deal.

Again, you’re unlikely to get a great PCP deal until your credit rating has had a chance to recover after an IVA.

Should I purchase a used car after my IVA?

If you need to buy a car after your IVA, a used vehicle can be a good option. A car’s value generally falls quite dramatically as soon as it’s driven out of the showroom. This means a second-hand car might make good financial sense.

You may be able to save up to buy a used vehicle outright. But even if you need to borrow to buy one, you shouldn’t need to borrow as much. This should make it easier for you to manage the monthly repayments.

Borrowing small amounts and making your payments in full and on time each month should also help you rebuild your credit score. It’s important to make sure you can afford the monthly repayments before committing to a deal. Creating a budget will help with this.

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