It is possible to get a loan to pay off your IVA early from a lender like Sprout or Perinta. There are some benefits. However it tends to be an expensive option.
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Can you get a loan to settle an IVA?
There are specialist loan companies who do offer cash loans for the purpose of paying your IVA early.
The process usually involves you borrowing enough to pay off all your remaining IVA payments in one go. So if you are paying £150/mth and have 30 to go, you will need to borrow £4500 (£150 x 30).
Two prominent lenders in this area are Sprout Loans and Perinta. Both say that to qualify for a loan, your IVA has to have been running for at least 30 months (2.5 years). In addition, you can only have missed 1 payment in the last 12 months.
Both companies will normally lend up to £7500 in total. So this option may only be suitable if your IVA payments are £250/mth or less (assuming you have a maximum of 30 to go). However they say they could lend more in certain circumstances.
Once the money you borrow is paid, your IVA is completed. You are just left with the ongoing loan payments.
What are the benefits of settling your IVA early?
There are some clear benefits of getting a loan to settle your IVA early. First and foremost, once it is paid off, you will not have any more annual reviews.
You no longer have the risk of your payments going up if your income increases or your living expenses fall. Your new loan payments will remain the same regardless of whether you earn more in the future or not.
In addition any windfalls you receive after your IVA is paid are yours to keep. Settling early is therefore a good idea if you know you are going to get a pay rise or it is likely you might get inheritance before the end of the Arrangement.
As a home owner, if you settle early you won’t have to try to release equity in 5th year of your IVA.
What are the downsides of using a loan to pay your IVA early?
Borrowing to pay off a IVA is not suitable for everyone. There are some significant issues to be aware of if you go down this route.
First, despite what you may have heard, your credit rating will not immediately improve. The record of your IVA will remain on your credit file for the full 6 years whether you pay it off early or not. It will significantly improve only when the record is no longer showing on your file.
Next, the overall amount you pay back to the loan company will be far more than if you just continued paying your standard IVA payments. The interest added to the loan will be high (normally between 30%-40% pa).
You also need to understand that there far less flexibility if you can’t meet your loan payments in the future. During your IVA it would have been possible to take a payment break during. However missed loan payments risk damaging your future credit rating.
Borrowing to pay off your IVA may only be a sensible option if you know your income will increase or you are likely to get a windfall before the end of the arrangement.