Do you need car financing but are worried that you may not qualify because you’re currently subject to an IVA (Individual Voluntary Arrangement)? Is getting car finance if you have an IVA possible? It’s a bit more complex than a simple yes or no answer. Let’s first understand your situation of being in this position, whether there are limitations in getting car finance, and what options are available to you so you can make that purchase.
What Does Being “Subject to an IVA” Mean?
An IVA is a legally binding arrangement whereby an insolvency practitioner agrees on an amount for you to pay each month according to your ability and income - this is then distributed fairly amongst your debtors. This is a remedy to debt for consumers who find themselves struggling when it comes to managing their finances.
If you opt to enter into an IVA, a debt counsellor can assess your outstanding debt and implement a repayment plan. This normally lasts around 5-6 years, and payments are made via the organisation who arranged it.
After this time any debt you still owe will be wiped off. This process will mean that your debtors cannot pursue you for repayment directly and over and above the agreed monthly sum that you can afford (according to the calculation done by the insolvency practitioner.)
The whole point of an IVA is to help you get out of debt through a repayment plan that works for you and the lenders.
Getting Car Finance While Under Debt Review
It can be quite stressful when you’re in an IVA. There are so many things that you need to manage when it comes to your finances. Along with that, you have to factor in the economic situation, your living costs, and maybe the lack of job opportunities. But there might come a time, later along the IVA plan period where, for example, you need a car to get to work.
In these circumstances, you will find it difficult to get a new loan, but it's not impossible. Although your IVA will have seriously impacted your credit rating, if you have kept up regular and timely payments this also shows you are capable of budgeting and meeting your monthly plan.
But whilst there are lenders out there willing to give you credit, the interest rates could be very high to reflect the high risk. And the finance company would need to do an affordability check, and also consult with the insolvency practitioner handling your case.
They would need to be satisfied that you have a genuine need for a car, for example, to get to work and that you can afford this additional outgoing. If this is not successful and you need a car, you could also consider the rent-to-own option.
Things to Think About
Before you enter into any car finance agreement, you have to be absolutely sure that you can commit to it. Even if your loan amount is limited, you can make the most of it by choosing the best car finance arrangement for your situation. In this case, the rent-to-own option could be a reasonable and practical choice for you.
Even if you think you can afford it, try not to pick an expensive vehicle. Don't forget the added costs of running a car too. Check the model’s petrol consumption so you can assess if it’s a budget-friendly car. You may choose to go for an older model that doesn’t consume too much fuel.
At the same time, you can avoid losing a big chunk of the car’s value through depreciation since it’s already an older car. Keep in mind that newer models and more expensive in every sense and you lose money on them almost instantly!
Key Points to Consider
To answer your question, “can I get car finance whilst in an IVA?” the short answer is yes, it's possible. There aren’t any legal restrictions that will prevent you from buying a car with finance if you have an IVA.
However, what you have to remember is that the IVA helps you in managing your finances and reducing your original outstanding debts. With this in mind, it’s best that you schedule a consultation with your credit counsellor and get their agreement.
If you want to proceed with your car finance application, think of all the costs that buying a car entails. The monthly repayments will take a significant chunk of your income every month. How will this affect your repayments for your loans relating to your debt review? Consider these things first before jumping into another financial commitment.
Also, factor in other costs such as parking, breakdown cover, maintenance, road tax, fuel, and insurance. It would help you a great deal if you can have estimates of these expenses so you can prepare your finances before applying for a loan.
Buying a car is a big financial decision that you have to be able to commit to, whatever your circumstances. Whilst there are no legal restrictions to applying for car finance while under debt review, it’s something that you have to really think about first before you sign any car finance agreement and get your counsellor's agreement first.
If you don't desperately need a car just now, you might want to think about paying off outstanding debts first and then work on improving your credit score. However, it takes 6 years to fully remove the history of the IVA from your credit history.
But this way, you’ll be able to get better car finance deals. It may take some time, but if you want to get a car that you really like for a good price, then you need careful planning and a strategic car finance application.