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17.04.2018

IVA Car Finance

One common question people ask when considering an IVA is how this might affect their chances of purchasing a car on finance. If you do choose to enter into an IVA (Individual Voluntary Arrangement) accessing any kind of credit will be more challenging. However, it is certainly not impossible to find a suitable package.

If you think that an IVA is the best solution for dealing with your debt, try not to be put off by the fact that accessing credit will become more difficult. Writing off your unaffordable debt and getting a fresh financial start is likely to be the best option in the long run, and with a little patience you will be able to rebuild your credit score.

During an IVA

During an IVA, you will need permission from the Insolvency Practitioner (IP) dealing with your case to obtain credit of more than £500 – not doing this will breach the terms of your IVA and could result in it failing. This means that you will definitely need their approval if you would like to obtain car finance. Your IP will decide whether or not this request is reasonable based on your circumstances – namely your income and expenses. If committing to a car finance loan is sustainable given your current budget and living costs, your IP is likely to approve it. However, since IVAs involve paying a significant proportion of your disposable income towards settling your debts, you may find you are not left with enough for monthly car payments.

Being in an IVA will also limit the car finance programmes which you are eligible for. IVAs are a type of formal insolvency – as such they are recorded on the formal Insolvency Register. Because of this, an IVA will also appear on your credit file, indicating to lenders that you have had trouble managing credit in the past. This will lower your credit score, and make lenders more cautious when it comes to providing you with credit.

There are companies out there which specialise in providing customers with poor credit scores, or histories of struggling to manage with debt, with loans. It is important to be cautious when approaching companies like these, however, as borrowing money when you have a poor credit history can be very expensive. It is vital to weigh up whether you really need car finance. Of course, for some people, having access to a reliable vehicle is vital to their work, and purchasing one outright may be a struggle. In this instance, you might feel that a car finance loan is your only option. However, if you can manage without a car temporarily – for example by using public transport or organising a carpool – it is definitely worth while saving money to purchase a car outright. It is also advisable to purchase a used car. It’s a well-known fact that a new vehicle’s value plummets the moment it is driven out of the show-room, and you can take advantage of this by purchasing a car second hand. If you will need credit purchase a car in this way, shop around. Car finance companies will not necessarily have the best value loans. You might consider approaching a credit union, as they are known for helping people who would otherwise struggle to access a loan.

After an IVA

Information about your IVA will be removed from the Insolvency Register as soon as it is completed. However, it will remain on your credit file a bit longer – around a year, depending on the length of your IVA. This can drag down your credit score. Even though you no longer need anyone’s permission to apply for credit, it can still be challenging to find a suitable lender. In this instance, waiting until you have rebuilt your credit score before applying for car finance is the best option, as you will be able to access better deals. However, this is not an option if you are in desperate need of a car. Just like during an IVA, approaching a variety of lenders can be a good idea. Credit unions may also be a good option if you are struggling to find companies who will approve your application.

For further advice about IVAs, you could speak to one of Creditfix’s expert advisors by calling 0808 2085 198.