Entering an Individual Voluntary Arrangement (IVA) can help you deal with any unmanageable debts but could have an impact on your options for applying for car finance. In this guide, we’ll explain what an IVA is, how IVA repayments work, if you can apply for car finance whilst in an IVA, and what challenges you may experience during the process.  

What is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement is a legally approved agreement between you and your creditors to pay back debts over a set period of time. The agreement is approved by the court meaning that your creditors are obligated to stick to it.  

Whilst under an IVA your creditors must stop charging interest on any debts, they also must cease chasing you to pay your debt.  

You must repay the agreed payments during this period, usually under a single monthly payment or a lump sum (if possible). You must also keep your IVA provider informed if your income increases or you gain access to new finances such as an inheritance. Also under an IVA, you cannot take on any further debt, such as a loan, without permission from your insolvency practitioner. 

To set up an IVA, you will need a qualified insolvency practitioner, who will charge fees for their services.  

How IVA Repayments Work

In order to repay your IVA, you will work with the insolvency practitioner to figure out a repayment plan based on an amount you can afford. As we previously mentioned, this could either be a lump sum or a monthly repayment – in some cases, a combination of the two might be suggested. Your creditors must agree to the repayment plan before payments are made.  

Once the IVA has been approved, you will make your repayments directly to the insolvency practitioner who will distribute the funds between your creditors and pay their fees.  

Your IVA will be reviewed each year to assess your current financial situation. If there are changes to your income, your IVA payments may change too. 

At the end of your IVA, usually around 5 to 6 years, if you haven’t repaid the debts in full, you won’t have to pay the rest. 

Can I Get Car Finance with IVA?

If you want to purchase a car whilst in an Individual Voluntary Arrangement, you will first need to discuss applying for car finance with your insolvency practitioner. If you’re looking to borrow anything over £500, you will need written permission from your insolvency practitioner to move forward. Taking out credit without getting permission from your insolvency practitioner could result in your IVA being terminated, which would mean your current creditors could take legal action against you to recover the debt you owe them. 

The insolvency practitioner, in most cases, will advise you to prioritise your existing debt before taking on more credit. However, they may be inclined to agree to your car finance application if: 

  • A car is essential for your daily life such as a commute. 
  • The cost of the purchase doesn’t interfere with your repayment plan.  

If your insolvency practitioner agrees to the application, you will then need to find a provider who will agree to a car finance plan. Whilst under an IVA, you will be considered a credit risk by lenders, meaning you may find it more difficult to be approved for car finance. But there is still hope! You may still be able to get car finance through specialists like Ucan. 

Each IVA provider works differently but usually, they will agree on a budget for you to stick to and provide you written confirmation of this budget. You can provide that to your new finance specialist, and they will do the rest to help you arrange to buy a car. 

Best Car Finance for IVA Customers: What Are My Options?

If your insolvency practitioner has agreed to your finance application and you find yourself being approved for finance, you may be wondering what the best option is for your situation. 

The most common car finance type for an IVA customer would be a Hire Purchase (HP) agreement as the vehicle is used as collateral against the loan, making it subsequently lower risk for the provider than other car finance types such as a Personal Contract Purchase (PCP). 

Car Finance After IVA

Once your Individual Voluntary Arrangement has been removed from your credit record, lenders will be more inclined to approve you for car finance because you are likely to be seen as less of a risk.  

An IVA will still show up on your credit report which may restrict your options for lenders and finance plans. However, six years after the start date of the IVA, it is removed from your credit file. 

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