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.

Included in this article:

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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”

    Lewis says:
    21/03/2018 at 14:40

    Hi

    I have just been told by my wife that her car needs over six hundred pounds spent on it to get it through the MOT. We are doing an iva already. Can I get car finance. I have already been thinking about a break from my IVA payments but that will not do it as the cars old and not worth the money to repair it. So the only thing that will work is a second hand car on finance. I don’t have to worry about my self anymore as I have a company car it’s my wife.

    Reply
      James Falla says:
      21/03/2018 at 14:53

      Hi Lewis

      As discussed in the article above there are companies who give car finance to people in an IVA. However you need to be very careful. The main issue is being able to maintain the new car payments bearing in mind that you are already on an IVA.

      In theory all your surplus income is already being paid into the Arrangement. As such if you take on a new debt thus increasing your living expenses you will struggle to maintain your IVA. In turn you could then put the whole thing at risk.

      My suggestion before you do anything is speak to your IVA company. If your wife not having a car will affect her ability to work and your household income they might be willing to help you. There may be scope to reduce your IVA payments to enable you to get the car. However this would normally have to go hand in hand with an extension of the Arrangement overall.

      Reply
    Tommy says:
    07/06/2018 at 17:36

    Hello

    I had a IVA accepted in march with freeman jones which deals with all my creditors. I have car finance with Blackhorse who are not included and I pay them separately. I have never missed a payment.

    Today I received a letter saying they are going to cancel my agreement and reposes the car??? I’m not sure who to talk too freeman jones or Blackhorse???

    Reply
      James Falla says:
      07/06/2018 at 17:43

      Hi Tommy

      This is strange. Normally car finance companies are happy for you to start an IVA with your other creditors as long as you maintain the payments to them.

      It would be routine for an IVA company to inform them that an IVA had started as they are an interested party. However the Arrangement should not affect them in any way. All I can think is that perhaps when they received this letter they got the wrong end of the stick and though you havd added their loan to the Arrangement.

      I suggest you speak to Freeman Jones first and get their advice.

      Reply
    Arthur says:
    25/07/2018 at 10:17

    My daughter is getting an Iva and has asked us to write a letter to say we will take over the payments for her car finance for 12 months. Does this mean we are a guarantor?

    Reply
      James Falla says:
      25/07/2018 at 10:39

      Hi Arthur

      I assume this is all about your daughter being able to maintain both the monthly payments required for her to be able to start and IVA and the payments for her car. If you confirm you will help then you will be doing just that simply helping support your daughter financially. You would not become a legal guarantor for either her car loan or IVA. In other words if you stopped paying then either the car would be repossessed or your daughter’s IVA would fail or both. However you would not be personally liable for any further payments.

      Reply
    Julie says:
    02/08/2018 at 12:01

    I have just completed a 6 year IVA. Will I be able to enter into a contract hire agreement for a car?

    Reply
      James Falla says:
      08/08/2018 at 10:41

      Hi Julie

      If your IVA lasted for 6 years the record should now also have come off your credit file. After this happens your credit rating improves significantly. You should now have a clean credit file and so be able to borrow again. As such you should be able to get a contract hire agreement for a car.

      The only issue you may face is that although your credit file is clear you do not have any history of responsible credit usage. This can only be improved by starting to use credit (such as the use of a credit repair credit card). This might put some finance companies off. If this does cause an issue you might still need to go to an adverse contract hire company.

      Reply
    Sarah says:
    28/11/2018 at 15:28

    Hi I’m in a IVA and have been for two years. My car has recently broken down completely and I need it for work. My employer has been sympathetic but their patience is wearing thin.

    I have found a car and finance with an acceptable rate and they are now waiting on my IVA to send a letter of permission. I have just been on the phone to the IVA today to be told they have all the information they need and they’ll let me know by the end of January!

    By that time I will have lost the car and the finance, plus almost certainly my job and likely my home also. Is this reasonable? What can I do?

    Thanks

    Reply
      James Falla says:
      28/11/2018 at 15:41

      Hi Sarah

      The fact that you are being told you have to wait for so long for an answer on your car finance from your IVA company does not seem reasonable. I suggest that you get back to them and explain why you need an answer more urgently. Make it clear that if you cannot get a positive answer from them within a day or two your whole IVA will be at risk.

      If they do not get back to you all I can suggest is you go ahead and take the car finance anyway. The worst they can do is say you have broken the terms of the IVA and fail the Arrangement. However if you lose your job you will not be able to pay it and it will be at risk of failing anyway.

      If your IVA does fail then it is often not the end of the world. There are various options you can consider including starting another Arrangement or considering an alternative solution.

      Reply

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