If you’re already in an IVA, you aren’t normally allowed to borrow any further credit over £500 (including car finance). This is because additional borrowing could make your IVA unaffordable. However, in rare circumstances, you may be able to get car finance with an IVA – if you get written permission from your insolvency practitioner (IP) first.
Getting car finance after an IVA may be easier in terms of not having to seek the approval of your IP, but it may still be challenging, as your IVA will remain on your credit report for six years from the start date.
Even so, it’s not impossible – even if you’ve been refused elsewhere. There are lenders available that specialise in providing finance options for people with bad credit scores, including those who have had an IVA. Note, higher interest rates may apply.
What is an IVA?
IVA is short for Individual Voluntary Arrangement and is a legally binding agreement that could be made between you and your creditors if you’re struggling to keep up with your unsecured debt repayments.
Working with an IVA practitioner, a proposal will be drawn up for you to repay an agreed percentage of your debts, with affordable repayments spread over a period that can last up to five or six years. If your creditors agree to the terms set out in the IVA proposal, they will no longer be allowed to contact you directly for payment. The portion of debt that remains unpaid when the IVA ends will be written off.
An IVA may be seen as an effective solution for those in debt and it demonstrates that you are taking steps to improve your situation. However, entering into an IVA should not be taken lightly. It can be more difficult to find a car finance loan during and immediately after an IVA, as lenders will know that you’ve had credit issues in the past. It’s worth getting debt advice before you go ahead, to see if an IVA is right for your individual circumstances.
What documents will I need for IVA car finance?
Different finance providers may require different documents for an IVA car finance application. However, most will need:
- Proof of income (e.g., recent bank statements or payslips)
- Proof of address (e.g., a utility bill or council tax statement)
- Proof of ID (e.g., a passport or full UK driving licence)
As mentioned above, if you’re currently in an IVA, you’ll also need to seek permission from your insolvency practitioner for any loan amount greater than £500. Your car finance account manager will be able to let you know exactly which documents you need and how best to share these with a potential finance provider.
Can I keep my car on finance on an IVA?
When you enter into an IVA but already have a car on finance, you should disclose this to your insolvency practitioner - your finance provider may also be one of your creditors. Depending on your circumstances, you may or may not be able to keep the car. If your vehicle is essential for you to be able to commute to work, for example, then you may be permitted to keep it. However, your insolvency practitioner might ask you to look for a cheaper alternative or to sell it if you financed it with a personal loan and are already the legal owner.
Does an IVA affect your credit rating?
When you enter into an IVA, this will be recorded on your credit report. This may negatively affect your credit rating and make it difficult to get approved for finance in the future as it proves you’ve found it hard to keep up with finance repayments in the past.
An IVA will remain on your credit report for up to six years from the date it was first approved. Once the IVA has come to an end, it will be marked as complete. You’ll also be able to start taking steps to restore your credit score over time.
How to apply for car finance with an IVA
To make a new car finance application with an IVA, you’ll first need to complete our online form to get a no-obligation quote. This will ask you to provide personal details such as your name, address, and date of birth, as well as your recent employment history and the amount you’d like to borrow.
The important difference with IVA car finance lenders is that they may ask to see a letter from your insolvency practitioner. An IVA is a legally binding contract, and you must request permission from your insolvency practitioner if you wish to borrow more than £500. It’s their job to ensure that a new car finance agreement won’t put you at further financial risk or make your IVA unaffordable.
I’ve had an IVA in the past, can I get car finance now?
We understand that everyone’s financial circumstances are different. No matter what your intentions were when you first took out a loan, life can be unexpected, and you could find yourself having trouble keeping up with your debts.
If you’ve had an IVA in the past, your information will be removed from the Individual Insolvency Register three months after your IVA completes, but the IVA can remain on your credit report for up to six years from the date you entered into it. This may make it more difficult to find car finance, but there are IVA car finance lenders who specialise in helping people with poor credit scores find an affordable loan option. Note, interest rates may be higher due to the risk to the lender.
What car finance options are available during an IVA?
If you’re looking for car finance during an IVA, there are different types of car loan to consider:
Hire Purchase
Hire Purchase (HP) loans are one of the most common types of car finance. Typically, you’ll be asked to put down a deposit upfront, followed by fixed monthly payments for a period of between two and five years.
As long as you make all your payments on time and pay the ‘option to purchase fee’ at the end of the loan term, you’ll take ownership of the car. Unfortunately, HP car finance can be difficult for those in an IVA, as the monthly repayments can be higher than they would be with other types of car finance. However, choosing a cheaper vehicle or a longer loan term may make your repayments more affordable. Bear in mind, a longer loan term may mean you pay more interest overall.
Personal Contract Purchase
Personal contract purchase (PCP) car finance can offer lower repayments than HP as you don’t have to borrow the full value of the car. Instead, you pay the difference between the initial cost of the car and its predicted future value when your agreement ends.
When you reach the end of your agreement, you can choose to hand the car back to the lender or buy it by paying the one-off balloon payment, which represents the remaining value of the car and so may be a substantial amount. If there is any equity in the car, you may be able to use it as a deposit towards a new car, as a part exchange.
Personal Loan
Personal loans work differently from HP and PCP loans, as they aren’t typically secured to the vehicle. This means that you’ll take ownership of the car as soon as you’ve used the loan to pay the seller. However, as the loan is unsecured, it does pose more risk to the lender and so may not be an option available to you if you have a bad credit score or are currently subject to an IVA.
How can I improve my credit score?
The good news is that credit scores aren’t fixed, and you can take steps to improve them over time. It’s not an exact science and there’s no set score that will guarantee you’ll be approved for car finance, but following the guidelines below may help get your score moving in the right direction:
- Register on the electoral roll – head online to register for free every time you move house.
- Pay your bills on time – consider setting up a direct debit to go out straight after payday to reduce the chance of making late payments.
- Check for mistakes on your credit report – regularly looking at your credit report can help you spot unusual activity or incorrect information.
- Don’t use all the available credit – using a smaller percentage of your total credit and not maxing out your credit cards could boost your score.
- Don’t apply to several lenders at once – several hard credit searches in a short time could affect your score negatively.
- Check your financial links – joint credit cards or mortgages could mean someone else’s credit history is affecting your creditworthiness.
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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.
Disclaimer: All information and links are correct at the time of publishing.
