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.
Jump to article contents:
- What happens to car finance in an IVA?
- Implications if the agreement ends during the IVA
- Can car finance ever be included?
- Is it possible to get finance for a new car?
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 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. However this normally has to be anticipated and agreed at the start of your IVA and written into the agreement.
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 finance for a new car 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.