Can I get car finance if I have an IVA?

While credit can be a great way of spreading the cost of purchases that you can’t afford to buy upfront, managing your money and keeping up with monthly debt repayments isn’t always easy.
Life happens and circumstances can change. You might unexpectedly lose your job, be impacted by the increased cost of living, or have an emergency expense that throws your budget off course. And if you keep falling behind with your repayments, you might need to investigate debt management solutions.
An individual voluntary arrangement (IVA) is one of the options designed to help you get back on track with your debts.
But as formal, legally binding agreements, IVAs aren’t for everyone. Entering an IVA isn’t a decision to take lightly – and it can impact your ability to get car finance.
Read on to learn more about how an IVA can affect your credit score and whether you’ll be able to get a car loan during your agreement or after it:

What is an individual voluntary arrangement (IVA)?

There are a whole host of reasons why you might be suffering with problem debt, and it can happen to anyone.
You might have had an unexpected change of circumstances like being made redundant or having to take time off to recover from an illness. Or perhaps you’ve been affected by increases in the cost of living and your disposable income has been impacted.
If you’re struggling to keep up with your debt repayments, you might look to enter an individual voluntary arrangement – known as an IVA for short.
An IVA is a legally binding agreement made between you and your creditors. During the IVA term – which usually lasts five or six years – you’ll agree to make one affordable payment each month that will be split between your creditors. Once the IVA comes to an end, any remaining debt not yet repaid will be written off.
As IVAs are formal agreements, you’ll need to work with an insolvency practitioner to support you with the setup. Terms and conditions will apply and the creditors holding 75% of your debt must agree to accept the terms of the IVA before it can begin. However, while you’re in an IVA, they can’t chase you or take further debt recovery action against you.

How does an IVA impact you?

Being in an IVA can have a lot of benefits, especially if you’ve been falling behind with payments and struggling to deal with the stress and anxiety that can come with managing debt.
During your IVA, you’ll need to make a payment each month based on how much you can afford to put towards your debt. In return, you won’t have to worry about any demanding letters from your creditors or escalation actions like visits from the bailiffs.
But there are restrictions to consider too. You’ll need to work closely with your insolvency practitioner to ensure the payment you’re making is the most you can comfortably afford. If you get a pay rise at work or receive an inheritance, for example, you’ll need to declare this and will likely see your monthly payment increase.
The amount of credit you can take out will also be limited. You’ll need to seek permission from the insolvency practitioner before you can apply for a loan of more than £500 and you might find it hard to secure credit at all during your IVA.

What is an insolvency practitioner?

Insolvency practitioner is the job title given to the person who will help you start and manage your IVA.
You can’t go it alone; to enter an IVA, you’ll need to work with an insolvency practitioner (and likely pay a fee for their services).
Once they have all your financial information, they’ll calculate how much you can afford to pay each month and how long the IVA should last. This information will go into a proposal that they’ll put to your creditors on your behalf. The creditors don’t have to accept the terms, but if those holding 75% of your debt do agree, the IVA can begin.
During the IVA, you’ll need to keep the insolvency practitioner updated on any changes to your finances and seek their permission if you want to apply for more than £500 of credit.

Getting permission from your insolvency practitioner

It’s your insolvency practitioner’s job to make sure your IVA is being managed well and is appropriate for your circumstances. That’s why they need to give permission for you to enter any new credit agreements, like car finance, that could jeopardise your ability to make your IVA payment each month.
To get permission, you’ll need to make a request in writing. Keep in mind though that even if you do get the go ahead, you might find it tough to find a lender who is willing to offer you a loan. Having an IVA proves that you’ve struggled to make payments in the past, which can make lenders see you as a higher risk borrower.

How long will an IVA affect you?

One of the big draws of an IVA is that, once it’s over, any remaining debt that you haven’t been able to pay off during the agreement term will be written off. 
That means you don’t need to worry about being chased by creditors and can instead start working on rebuilding your credit score.
Unfortunately, you won’t have a completely fresh start once your IVA ends. It will feature on your credit report for up to six years and can make lenders hesitant to lend to you during that time, even if you’ve been able to get your finances back on track.

Can I get car finance with an IVA?

While there are no hard and fast rules saying you can’t get car finance with an IVA, you will be restricted on how much you can borrow.
You’ll usually be limited to loans of less than £500, which is unlikely to be enough to buy a new set of wheels, even if you’re looking for a used model. You’ll need written permission from your insolvency practitioner to borrow a higher amount.
If your income has improved or you’ve received a windfall since your IVA started, you should notify your insolvency practitioner straight away. They’ll likely amend your payment so that the extra money goes towards paying off your existing debt rather than allowing you to take out a new finance agreement.
Once your IVA is over, you may have more options available. While your credit score may still need some TLC, there are car finance lenders who specialise in helping people with bad credit get a loan. Search for ‘bad credit car finance’ on Google and you’ll be presented with several companies who are dedicated to helping people with poor credit to find finance. 

FAQs about IVAs

Does an IVA affect car insurance?

 While having an IVA can make it harder to get car insurance, you should still be able to find a policy. Unfortunately, this does mean you’ll likely need to pay a higher premium for the privilege.
It’s all about risk. While having an IVA doesn’t make you more likely to claim on your insurance (your financial situation doesn’t necessarily affect your driving ability after all), it might increase your chances of missing a payment. The insurer may charge you more, especially if you pay in instalments, to make up for this added risk.

How long after an IVA can I get credit?

 You won’t be prevented from applying for credit during an IVA – as long as the loan is less than £500 – but getting finance can be difficult. You’ll need to get written permission from your insolvency practitioner if you’d like to borrow more.
Once your IVA ends, you can apply for credit without restrictions. However, the IVA will remain on your credit report for up to six years, so you might still find it tough to secure a loan as you’ll be considered a high-risk borrower.
You could take steps to improve your credit or consider accepting a high APR loan with a specialist bad credit loan provider.

How long does an IVA stay on your record?

 An IVA will stay on your credit report for up to six years after its start date. It will be visible to lenders and may make them reluctant to offer you a loan as they may worry you won’t be able to keep up with your repayments.

Can I go on holiday while on IVA?

 Whether you’re dreaming of escaping to the sun or holing up in a cottage in the countryside, it is possible to take a break while in an IVA. The only caveat is that it’ll need to fit into your IVA budget and not put your payment at risk.
This means you can either save over time to be able to afford a holiday or earn a little extra money. Your insolvency practitioner will likely include an additional income threshold of around 10% into your agreement – this is extra money you can earn that doesn’t need to go towards paying your debt.

Can I change from IVA to debt management?

 Unlike an IVA, a debt management plan (DMP) is an informal agreement between you and your creditors to help you pay off your debts with more affordable repayments.
Unfortunately, changing your mind and switching from an IVA to a DMP isn’t all that easy. IVAs are legally binding agreements so you’ll need to request permission if you want to bring yours to an end early. Your insolvency practitioner and creditors will usually all have to agree that you can end your IVA and pay back the debt another way.
Don’t simply stop making your payments. This will cause your IVA to fail and could put your financial situation at risk.
It’s worth keeping in mind that DMPs also don’t offer the legal protections that come with IVAs; your creditors can keep chasing you if they wish and there’s nothing stopping them changing their mind and going after the full loan amount at any time.