Can You Finance A Car Whilst In An IVA?

It’s certainly possible to obtain a car loan whilst in an IVA; however, it can prove a struggle, as we’ve touched on.

Whether you’re granted a car finance loan comes down to your Insolvency Practitioner. They will base your request for car finance on your current circumstances, taking into account the total cost, your wage, your outgoings, poor credit scores and your available monthly budget post living expenses.

To learn more about how you can obtain car finance whilst in an IVA, speak to one of our advisers.

How Does An IVA Affect A Current Car Finance Agreement?

An Individual Voluntary Agreement comes in the shape of a type of insolvency. What does this mean? In a nutshell, the agreement details are noted on both your credit file and on the formal Insolvency Register.

This has the effect of lowering your credit score, which puts lenders off when it comes to providing car finance. A bad credit score or credit file makes you appear high risk.

In addition to impacting your credit score, an IVA agreement will limit you to a set amount of car finance agreements. If you have a particular car or monthly car payments in mind, this can cause issues.

If you feel you’ve been unfairly treated, numerous organisations are here to guide you through unaffordable Debt. These include Stepchange, Citizens Advice, or National Debtline.

Which IVA Car Finance Options Are Available?

There are numerous IVA car finance contracts to choose from, all designed to suit different needs. We’ve listed three of the most popular Individual Voluntary Arrangement car finance agreements below.

Hire Purchase (HP)

If you require a new car but don’t have the funds to buy it in one go, hire purchase is a great option and one of the most popular ways to pay for a new set of wheels on a budget.

It’s so popular, it’s been used as a form of finance for cars for many years now. Yet, just because it’s the preferred method for many, this doesn’t mean it’s the correct finance option for you.

So how does it work? Hire purchase, also referred to as HP, as the name suggests, is a type of used or new car finance. In essence, you hire the car rather than purchase it outright.

When the fixed term agreement ends, you can either pay the remainder and buy the car or exit the contract. This finance option works similarly to a personal loan.

As car finance companies can seize the vehicle should you fail to make repayments, this is one of the easier loans to sign up to. However, it’s important to note you may have to pay a deposit upfront, which is usually 10% of the car’s value.

The dealer makes money from the finance agreement, often through a commission. If you’re considering this type of car finance option, it’s important to calculate the entire cost you’re required to repay, including interest.

PCP/Lease

A personal contract purchase or PCP is a good option for those who wish to invest in a car on finance and renew this car every few years. The downside of this finance agreement? A substantial final payment and a contract that is usually more expensive than a loan itself.

It is, however, a lot less than paying for a new car upfront. Again, you can opt to buy the car at the end of the lease if you don’t choose to upgrade.

Individuals entering into this agreement can set a term for the contract and will be required to pay a deposit (for example, this could be a two-year term with a £1,000 deposit).

At the end of the contract, the finance loaner will provide a final value for the car, i.e. £5,000. This sum is then deducted from the car’s total to set a loan amount (for example, those leasing a vehicle will pay £12,000 over three years for a car with a value of £20,000).

With this type of contract, there is often a mileage allocation (for example, 10,000 miles per year). If you’re able to stick to this limit and keep the vehicle in tip-top condition, you have the option to walk away from the contract when the agreement comes to an end.

Alternatively, you can pay the final value owed, often called a balloon payment, and the car will be yours to own.

A PCP lease often boasts better deposit contributions or discounts, as the dealer stands to make a profit from the finance contract. This is especially the case in terms of used cars.

Car purchase with a personal loan

If you wish to own a car outright yet need to borrow funds, a car purchase with a personal loan is often the cheapest option.

This type of loan often allows individuals to borrow larger sums than those offered by a 0% credit card. The catch? You must pay interest. Despite this, repayments will be set out in a way that allows individuals to clear the debt at the end of the contract period. This is often between one and five years.

If approved for this loan, the funds will be placed directly into your bank account. You can then use this money to purchase the car, meaning you’ll own it outright.

Is It Recommended To Get Car Finance In An IVA?

Many people require a car, whether it’s to get to and from work or to take the kids to and from school. However, not all of us can afford a vehicle.

An IVA agreement is a debt solution that can help you pay off existing debts and still buy or lease a car. This is only recommended if you can afford to make repayments to your IVA and monthly car financing repayments.