Car Finance and an IVA

Car Finance and an IVA

Car Finance debt (either HP or PCP) is normally excluded from an IVA. You should be able to keep the agreement going as long as the payments are not excessive.

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What happens to Car Finance in an IVA?

There are generally two types of car finance – HP (Hire Purchase) and PCP (Personal Contract Purchase). If you are planning to start an IVA and are paying for your car using either of these options the debt is not included in the Arrangement.

This is because it is secured against your car. If you were to stop making the payments the finance company would likely repossess the vehicle. As such given you need it for work and family commitments you will be allowed to keep the finance going.

This will be acceptable to the other creditors you include in your IVA as long as the payments are not unreasonably high. The amount required to maintain them is included to your living expenses budget.

Most car finance companies will allow you to continue paying the agreement while you are in an IVA. However you should double check with them before you apply.

Implications if your Car Finance ends during an IVA

A monthly payment IVA will normally last 5-6 years. As such it is likely that your car finance agreement will come to an end during this time. What happens next will depend if your agreement is HP or PCP.

If you had an HP agreement you now own your car. The money you were paying towards it must now be added to your IVA. For example if your IVA payment is £150/mth and your HP was £120/mth your IVA payment will increase to £270/mth.

If you are paying for your car using PCP the situation is different. At the end of the lease you hand the vehicle back to the lease company. You are then be allowed to start a new agreement as long as the new payments are affordable.

Your options for getting new a car finance agreement during an IVA will be restricted due to your poor credit rating.

Can Car Finance be included in an IVA?

Because car finance is secured against your car if you stop paying it your vehicle is likely to be repossessed. Clearly if you need the car for work or family purposes this is not an attractive option.

However if you no longer need the vehicle or have decided that the payments are too high an IVA can help. In these circumstances you could stop paying and voluntarily hand your car back to the finance company.

It will then be sold and the proceeds off set against the outstanding debt. If there is any shortfall you will still be liable for this. However this shortfall debt is now unsecured and can be included in the Arrangement.

If you are struggling to pay your car finance payments but want to keep the vehicle an IVA may still help. It allows you to reduce your other debt payments thus freeing up the cash you need for the car.

Is it possible to get new Car Finance during an IVA?

It is not easy to get new car finance during an IVA. The main reason is your poor credit rating. Most finance companies you approach will reject your application because of the Arrangement.

The only lenders who may consider you are those known as adverse. These are companies prepared to deal with clients who’s credit ratings are poor and are therefore perceived as higher risk. However beware that they charge relatively high rates of interest.

As a result the monthly payments on any car finance deal you are offered are likely to be higher than the ones you were paying previously. Before taking the deal on it is therefore vital that you check you will still be able to pay your IVA.

You must get agreement from your IVA Company before taking on a new car finance agreement during your IVA. They will normally agree if you are unable to work without a vehicle.

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17 thoughts on “Car Finance and an IVA

    Richard Williams says:

    Hi
    It could be likely that I might have to apply for an IVA, I’m worried about my hire purchase agreement that I have on my car, I consider the repayments to be affordable at £180 a month, I am a hairdresser that is salon based and I also visit clients at home. Should I transfer the credit agreement into my parents name to protect my car?

    Regards
    Richard

      Hi Richard

      If you are considering an IVA you do not need to worry about your car. Most finance companies are not concerned as long as you keep making your payments on time. As such you do not need to transfer the credit agreement into someone else’s name. You will be able to maintain it during the IVA.

      That said you need to consider what will happen when the agreement comes to an end (which it will normally do during your IVA):

      – If you have an HP agreement you will then own the car. The monthly payments will then have to be added to your ongoing IVA payment.

      – If you have a lease agreement (PCP) you will have to hand the car back at the end of the agreement. You will then need to get another car. However it is unlikely you will be able to use the same finance company due to your poor credit rating. You may have to use a sub prime lender who will charge higher interest so you may have to downsize your vehicle.

    Stuart says:

    Hi there,

    Bit of a weird one regarding my HP car from Blackhorse . So i started my 5yr IVA in June this year with a total debt around the 30k mark. Blackhorse are included in the IVA for the HP which i paid for every month for 4 years over a 5 year contract then things got a bit delicate in my personal life and so I’ve ended up here.

    Blackhorse dont want my car back, they say its not worth the hassle as needs new clutch and MOT so believe it or not there have let me keep it. Now i appreciate i dont deserve any financial gain from this unique situation but i cant afford to run the car, its an 09 insignia worth £1800 and i want to sell it but apparently i cannot until my IVA is over in 5 years. I owe about 700 more than the car is worth and clearing the Bhorse debt or lowering it will not change my IVA payment of £290 per month.

    I really want to sell the car i paid for every month for 4 years with only one year to go but it has a HPI thingy on it.

    Anyone have any advice please ?

    Yours gratefully,

    Stu

      Hi Stuart

      I have come across this type of situation before where a car finance company is not being paid but refuses to come and collect the vehicle because financially it is not worth their while.

      Who has told you you cannot sell the car? This is not correct. You can sell the car although the buyer you may need you to provide confirmation from the finance company that they allow the sale. That said any money received from the sale would be regarded as a windfall and would then have to be handed to your IVA company. As such you would not gain from this but your creditors in the IVA will.

      The other thing to consider is what impact this will have on your living expenses budget. Have you made provision for the cost of running this car in your budget? If so your expenses fall once it is sold (ie no further insurance, tax etc to pay) and so your disposable income and therefore IVA payment will increase unless you have made an agreement with your IVA company allowing you to get a replacement vehicle.

    Stu says:

    James thanks a lot for a clear and fast response and to be honest i’m not that secure in the fact that the company initially looking after my IVA (which took almost 10 months to complete) fully understood the B-horse issue. – Action Credit Insolvency. They told me i cannot sell it.

    After payment No1 in June i received an email stating ACI were no longer looking after me and their lead IP left them and started his own company taking a lot of custom with him – Jarvis Insolvency.

    I’m not entirely sure if i outlaid any car costs in my expenditure as its been SORN for a good while but i have a suspicion ACI included the historical payment of £198pm for the car in my expenditure which i didnt pay for a year. The council want it off the street, i cannot afford to fix it.

    I know this sounds a bit selfish but i paid well over the odds for the car and paid so much of it off. If i somehow get permission to sell it do i really need to declare it as it wont lower my IVA payment or life span. thanks again James.

      Hi Stuart

      You have definitely been given incorrect advice from your IVA company. You can certainly sell the car as long as the finance company give the green light.

      I understand that you will want to keep the money from the sale. If you do not tell ACI they will probably not find out you have sold it. The only thing you need to consider is whether they have provisioned for the HP payment in your expenses budget. On reflection given the debt is included in your IVA this should not be the case so it should not be an issue.

    Stu says:

    James i will let you know how i get on thanks very much, it’s not often you get “something for nothing” in this realm of finacial operations and i realy do appreciate it.

    Stu

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