We often get asked whether purchasing a new car using a financing option will be possible while in an Individual Voluntary Agreement (IVA). Although obtaining credit while in an IVA can be difficult, it’s certainly not impossible.
What Effect Does an IVA Have on Your Credit Score?
An IVA will be listed on the Individual Insolvency Register, and the default registered at the start will remain on your credit report for six years. During the time you are in your IVA, you will not be allowed to obtain any further credit without the permission of your IVA Supervisor. This means that although an IVA can affect your credit score, with permission, you may still be able to use a finance option.
Consider carefully whether purchasing a new car using finance while in an IVA is necessary. Adding debt while already using a formal debt solution can be counter-intuitive. As your IVA usually lasts five to six years, by the time it is completed, the default registered at the start will have come off your credit file, and you can make a fresh start — being financially free.
How to Get Car Finance in an IVA
To obtain credit for any amount over £500 while in an IVA, you must get permission from your IVA Supervisor. However, this doesn’t mean that you can’t get a car on finance.
Your Insolvency Practitioner (IP) will look at your current financial situation, including your income, expenses and whether an additional outgoing could be manageable based upon your current budget. If your IP feels that committing to a car finance loan is sustainable, then they will confirm to your chosen provider that they have no objections in you obtaining the finance. Keep in mind that your monthly IVA payment will be based upon using the majority of your disposable income to pay back what you owe to lenders, so it may not be feasible to add another monthly payment.
Where Can I Get Car Finance While in an IVA?
It can be difficult to know where to begin, and approaching companies about car finance can be daunting when you are worried about whether your credit score will allow you to obtain the finance you need. However, some companies specialise in loans and car finance for people with poor credit, county court judgements (CCJs) or in IVAs.
At this point, it is important that you take a moment to consider whether you really need a new car or whether there is another way to finance a new car while in an IVA. The companies that lend money to people with poor credit are well-known for having very high-interest rates, so it can be far more expensive than if you were to borrow the money from friends or family or wait until after your IVA has completed.
However, many people need a car for work and would be unable to keep their job without transport, and with no other financial means of purchasing a new car, a low credit lender may be the only option.
What Kind of Car Can I Get on Finance While in an IVA?
Generally speaking, creditors will not allow what they deem to be an excessive contribution towards a car finance company whilst you are on an IVA. It’s important that you obtain a quote (or two) before you approach your IP and see what the monthly repayments will be. Your IP will tell you whether that is acceptable, but you do need to make sure it is affordable.It is recommended that you choose a second-hand car that has reasonable fuel consumption and low tax and insurance costs associated with it. This will not only help you to keep within your car finance budget but also prevent you from struggling month-to-month with the costs of running the car.
What about Car Finance after an IVA?
After your IVA is complete, it will no longer appear on the Individual Insolvency Register. Your IVA will stay on your credit report for six years after the default was first registered. So, depending on how long your IVA lasted, it won’t be long before it is removed from your credit history and you can begin building your credit score again. If you have managed without a new car, it is worth holding out as long as possible while your credit score recovers and grows so that you can get the best deal possible and have a wider choice of lender.