A Payday loan can be included in an IVA. However you should avoid taking a new one during the Arrangement. It is not easy to add new loans once the Plan has started.
- Can a Payday loan be included in an IVA?
- Can you add a new loan to an exiting Plan?
- Repay a Payday loan using a Payment Break
- How to avoid borrowing more during an IVA
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Can a Payday Loan be included in an IVA?
A payday loan is an unsecured debt. As such if you are starting an IVA and have these kind of debts they can and usually must be included in the Arrangement.
Under normal circumstances they would have to be paid back at the end of the month. However in an IVA they are treated in the same way as all your other creditors. They will receive a proportional share of the money you pay in throughout the Plan.
Payday lenders will usually accept your IVA proposal. However even if they reject this should not matter. These type of debts are normally relatively small compared to your other creditors and so can be overruled.
It is not necessary for all your creditors to agree to your IVA. As long as a majority of the voting creditors by size say yes it is accepted and legally bound on them all.
Can you add a new Payday Loan to an existing IVA?
It is not advisable to borrow more during an IVA. However if you suffered a financial emergency you may have taken a Payday loan to help you get through it.
In these circumstances you will almost certainly struggle to pay back the loan on time and maintain your IVA payments. One way to solve this problem is to add the loan to your Arrangement.
You must first speak to your IVA Company. They do not have to help you. However they will often do so if the alternative is the likely failure of the entire Plan because you cannot afford to pay both.
Where you are allowed to add a new debt you will normally have to accept an extention of the agreement. This ensures the original creditors still receive a similar return as was originally agreed.
Repay a Payday Loan using an IVA Payment Break
Instead of trying to add a new Payday loan to your IVA an alternative option is to take a payment break. This allows you to suspend your monthly payments and use the money to pay back the loan instead.
Once the loan has been repaid you then restart your payments. Of course the suitability of this option will depend on the amount of extra money you borrowed and the monthly amount you pay into your IVA.
Any payments you miss because of a break will have to be made up at the end of the Arrangement. As such this option will extend the length of your IVA.
A payment break will only work if you can repay the new Payday loan you have taken in a reasonable period of time.
How to avoid Borrowing More during an IVA
A monthly payment IVA will last for 5-6 years. During this time it is more than likely you will face an unexpected financial emergency. You should therefore plan for this so you do not need to borrow a Payday loan to cover it.
Where possible you should try to save a small amount from your living expenses budget each month. This money will then be available to use if you have a financial crisis.
If you do not have sufficent funds saved to meet an emergency speak to your IVA Company about a payment break. The cash you save due to the missed payments and be used to cover the emergency rather than borrowing more.
Do not be tempted to take a Payday loan to pay for a financial emergency. It is a far better option to speak to your IVA company about a payment break.