Can you pay an IVA off early?
In certain situations, it may be possible to pay off your individual voluntary arrangement (IVA) early.
In this guide, we’ll cover:
- the steps to settling an IVA early
- how much it costs to settle an IVA early
- if settling early will make it easier to get a mortgage
- if it’s a good idea to get a loan to pay off your IVA
- what will happen after you’ve paid off your IVA
In what situations might I be able to pay off my IVA early?
If you receive an unexpected lump sum during your IVA, you may be able to use it to pay off your IVA early.
Some people receive money from a friend or someone in their family to pay off their IVA. If you find yourself in this position, you’ll be asked to provide proof that the person who gave you the money is aware it will be used to pay off your IVA.
If you come into some money as the result of inheritance or a windfall payment, this must go towards your IVA anyway. This is because they are considered assets.
What this usually means is you’ll pay off a bigger portion of your debt rather than settling your IVA early.
The only exception to this would be if the amount you receive is large enough to cover your remaining debt plus interest.
You must tell your insolvency practitioner about any inheritance or windfall payments you receive during your IVA.
It is ultimately up to your creditors to decide whether to accept an early repayment offer, so speak to your insolvency practitioner if this is something you’re interested in doing. They’ll be able to offer you advice and speak to your creditors on your behalf.
Steps to settling an IVA early
If you want to pay off your IVA early, these are the steps you’ll need to follow:
Early settlement offer
Talk to your insolvency practitioner about making an early settlement offer. They’ll let you know if this is possible and can help you decide how much to offer your creditors.
Variation meeting
If your insolvency practitioner thinks your creditors might agree to early settlement, they will set up a variation meeting. This is a meeting that has to take place if you want to make a significant change to your IVA.
Final decision
Creditors holding at least 75% of your total IVA debt will need to agree to an early settlement for it to go ahead.
Is it a good idea to get a loan to pay off my IVA?
Some lenders offer IVA early settlement loans. Lenders promote these loans by saying they release you from your IVA early and help you build your credit score.
But IVA early settlement loans usually come with high interest rates. The chances are you’ll end up paying more and for longer than you would on your IVA.
You also need to get permission from your insolvency practitioner to borrow more than £500 from any lender.
What happens after the IVA has been paid off?
If you pay off your IVA early, you can turn your attention to rebuilding your credit rating. While the IVA remains on your credit file, you’re unlikely to be able to improve your score dramatically. But you could consider borrowing small amounts from specialist lenders set up to help people rebuild their credit rating.
By making repayments on time and in full, you’ll show potential future lenders you can borrow responsibly. It’ll also mean, when the IVA does fall off your credit file, you won’t be starting from scratch building your credit history.
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