What happens Car Finance in an IVA

16/03/2023
What happens Car Finance in an IVA

You will normally be allowed to keep your car finance agreement going if you start an IVA. This debt will be excluded from the Arrangement.

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Is your car finance affected if you start 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.

Were you to stop making the payments, the finance company would likely repossess the vehicle. As such in most cases, you will be allowed to keep paying the finance and keep the car.

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.

Struggling to get your head round all of this? We can Help. Give us a call (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.

What happens if your finance agreement ends during your IVA?

A monthly payment IVA will normally last 5-6 years. As such it is likely that your 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 may then be allowed to use the funds to start a new agreement.

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

Is it possible to include car finance 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.

Can you get car finance during an IVA?

It is not easy to get finance for a new vehicle 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  finance agreement during your IVA. They will normally agree if you are unable to work without a vehicle.

Need more advice about your car finance and starting an IVA? Give us a call (0800 011 4712) or complete the form at the bottom of this page. It’s free and confidential.

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37 thoughts on “What happens Car Finance in an IVA”

    RobN says:
    23/04/2021 at 16:41

    Hi, I am a director of a small company with a company car which my company owns outright. I entered an IVA in January this year. My company car will be replaced during 2021 and it will be my company that either buys or leases the replacement car. Will my personal IVA impact on my company ability to enter into a lease agreement?

    Reply
      James Falla says:
      26/04/2021 at 18:27

      Hi RobN

      Whether or not your IVA will affect your company credit rating depends on a number of factors. These include whether your company is banking with the same bank as you personally. Also how long your company has been trading and its trading history with its bank. Also whether the company has used credit in the past (ie a company credit card).

      If your company has a long trading history and good credit rating in its own right, then taking on a car lease agreement should not be affected by your personal poor credit rating. However if the company is relatively new and has no credit history, the bank will consider your credit worthiness as an individual as well. The fact that you are in an IVA may then cause you an issue.

      Reply
    Terry says:
    23/05/2022 at 18:31

    I have a caravan on finance which is due to end in August 2023, how does this work if I went into IVA?

    Reply
      James Falla says:
      23/05/2022 at 18:38

      Hi Terry

      On the face of it, the caravan is a significant asset. Given you don’t live in it and you use it for pleasure, your creditors may not agree to an IVA unless you agree to selling it and putting the funds towards paying your debt. If the finance outstanding is more than its value, the creditors may still not be happy depending on how much the monthly payments are.

      This would need more details, information and analysis before a final decision could be taken. But in my experience you may not be able to keep it. If this was not something you could agree to, then you might have to use a debt management plan instead of an IVA.

      Reply
    BrownE says:
    21/02/2023 at 11:21

    Hello,
    My husband and I have both been in separate IVA for 2 years just entered our 3rd year. He was able to get a new car finance but I am really struggling. I have a car on finance but the agreement is ending. I have to pay a balloon payment of £7400 by March 27th or give the car back. I have been to various loans company and finance companies and I’m always being declined. My IVA company have provided letters for me saying I am able to pay a loan back. But still I get declined. I need my car for them and to go to work. Please help

    Reply
      James Falla says:
      21/02/2023 at 11:30

      Hi BrownE

      I am sure you have been applying for car finance with sub-prime lenders who will often lend to people in an IVA. I assume your husband applied to similar companies. I am not sure why he was accepted while you have been declined. All I can think is that your income may be lower and so you don’t meet their criteria?

      Given this situation, the fact is you may not be able to get finance. The only other option may be to get some money together and buy a cheap run around for say £1000-£1500. One way of doing this is for both you and your husband to take a payment break from your IVA payments. You then put this money towards getting the run-around car.

      I appreciate this is by no means an ideal solution, but it is an option at least.

      Reply
    Maria B says:
    13/06/2023 at 18:14

    Hi I am in an IVA with a PCP contract my car has been written off and the insurance company are paying out am I able to enter a new contract

    Reply
      James Falla says:
      13/06/2023 at 18:21

      Hi Maria

      Whether or not you will be able to get a new car finance agreement will depend on the attitude of your IVA company. In theory, as long as the payments are no greater than the amount you were paying for your previous car (meaning there will be no change to your surplus income) it should not be an issue.

      Normally you will need to use a specialist subprime car finance company who is happy to work with people who have poor credit. There are a number of these. They will normally need confirmation in writing from your IVA company that they are happy for you to take the finance before you go ahead.

      You can read more about this by clicking on the following link: Can you get car finance in an IVA?

      Reply

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