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 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.

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29 thoughts on “Car Finance and an IVA

    Steven says:

    Hi we finished an IVA about 9 months ago. Can we get a car on HP kind regards

      Hi Steven

      Your options depend on whether the record of your IVA is still showing on your credit file. The record comes off automatically 6 years from the start date of your IVA. As such if yours was 5 year agreement, you are now 9 months into the 6th year. This means your credit rating will be clear in 3 months time. If it was a 6 year IVA, your credit file should already be clear. Once your credit rating is clear you should then be able to get car finance from most providers.

    Laurence says:

    I have car finance on my iva. Wondering if I paid the car off would I have to pay more into my iva? My wife pays for car from her acc I got it for her when my credit was good…..

      Hi Laurence

      The answer to your question is yes. Once your finance agreement has been paid off, the money that was being paid to the finance company will have to be added to your IVA payment. This is the case whoever is actually paying for the car. The payments would have been identified when you did your household income and expenses budget and I would be pretty sure that the increase will have been written into your IVA agreement.

      The only time this would not be the case is if your wife’s income and expenses were not taken into account when originally calculating your IVA payment. However this would be unusual.

    Libby says:

    Hi I am a few months into my iva and was discussed with my iva provider about changing my car they advised I can but will need to stay with the same company and just change the vehicle. Is it wise to tell my finance company I have an iva?

      Hi Libby

      Normally car finance companies are not concerned if you start an IVA as long as you maintain the monthly payments. As such if you mention that you are in an IVA to your current company it should not affect your current agreement with them. However it will affect any new agreement you want to take out. This is because your credit rating has now become poor because of your IVA.

      It is therefore unlikely that main stream finance companies such as VW Finance and Ford Credit will be able to help you start a new agreement because you will not pass their credit check. As such if you are currently with one of these lenders you are unlikely to be able to stay with them. You will have to speak to a sub prime lender such as Money Barn or Blue Motor Finance.

      The only issue with sub prime lenders is they are likely to charge a higher rate of interest so your monthly payments on a similar value car will almost certainly go up. Whatever you do you MUST NOT sign for a new finance agreement without first checking the new monthly payments with your IVA company to make sure they are happy with them.

    Donald says:

    My daughter has a car on finance. She is currently in an IVA but can’t afford to continue paying for the car as it is crippling her financially. Can she sell the car?

      Hi Donald

      This is not a simple situation. The first thing to say is that if the car is on finance then your daughter may not have the right to sell it and keep the money. The funds received would have to be paid to the finance company.

      If the amount received is sufficient to repay the outstanding finance then no problem. However if not, there is going to be a shortfall debt that she is still liable to pay. It might be possible to add this debt to her IVA. However, this may result in the length of the agreement being increased.

      On top of this, if she is no longer paying the finance I would be pretty sure that her IVA company will be expecting her monthly payment to increase accordingly. If she is struggling to pay now, this might cause her ongoing problems. A full review of her income and expenses would certainly be required. Also to think about is what transport will she need going forward?

      Before making any decisions I would strongly recommend chatting through all the implications with an expert. I would be happy to speak to you if you wish. By all means give me a call (0800 011 4712).

    Jennie says:

    If my car lease agreement ends and you can’t get a new one will my Iva take that money towards my debts?

      Hi Jennie

      The first thing you need to do is check with your IVA company to make sure you are allowed to use these funds to get another lease. This agreement should have been written into your IVA at the start. If not your IVA company might be expecting you to add them to your IVA payment regardless.

      Given you are allowed to use the funds to get a new car, you will not be able to get finance from a main dealer such as Vauxhall or BMW. You will need to speak to a specialist sub prime lender like Money Barn, Blue Motor finance or Zuto. These types of companies should be able to help but they are expensive so you may have to get a lower value vehicle than you had previously.

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