IVA Vehicle Finance

What is an IVA?

An IVA stands for ‘Individual Voluntary Agreement’, which is a legally binding arrangement between you and your creditors. It allows you to repay your outstanding debts over a certain period of time, with the understanding that any remaining debts will be written off at the end of the agreement. The IVA has to be set up by a qualified Insolvency Practitioner, and then approved by the court.

There are certain requirements that need to be met, in order to qualify for an IVA. These include having debts with at least two creditors, with a value of £10,000 or above, as well as being in the position to make monthly payments. You’d work out a reasonable payment plan with your Insolvency Practitioner, and all contributions would be paid directly to them. Your Practitioner would then take a fee, before distributing the funds to your creditors.

Before entering into an IVA, it’s important to understand that they come with a number of risks. Not only can they be costly, there’s also a chance that you’d need to sell your assets, which may include remortgaging your home. An IVA can furthermore damage your credit rating, making it more difficult for you to borrow money moving forward.

Getting Vehicle Finance With an IVA

When it comes to applying for a vehicle loan with an active or recent IVA, many lenders will turn down your application. This is because an IVA is reported on your credit file, and can negatively affect your credit score. But there are some lenders who have options available for people with a low credit rating, including an open IVA.

Current IVA

If you currently have an IVA in place, and wish to take out vehicle finance, you’ll first need to speak to your Insolvency Practitioner. You’ll have to prove to them that you can both afford the agreement, and that owning a vehicle is a necessity for you.

In order to show that you’re able to make the monthly instalments, you’d need to thoroughly assess your finances, and perhaps complete a comprehensive budget. You may also wish to use a vehicle finance calculator, to get a rough idea of how much your car finance payments would be.

In terms of demonstrating that a vehicle is important to your daily life, you’d need to have a valid reason, such as requiring a car to take your kids to school. You would also need to convince your Insolvency Practitioner that a car loan is the best way for you to finance a vehicle.

Previous IVA

If you’re no longer in an IVA, but still have one reported on your credit file, the lender would see this when they ran a credit check. Depending on their eligibility criteria, the vehicle finance provider would then determine whether a previous IVA is an indication of financial difficulty. Responsible lenders won’t pay out a loan if they feel you’re unable to keep to the repayments.

Most vehicle loan providers will look at an application on an individual basis, and may therefore consider your application even if you’ve previously been in an IVA. Older IVAs aren’t generally seen as an issue, especially if you’ve worked to build up your credit score in the meantime.

IVA Vehicle Finance Options

When it comes to vehicle finance options when in an IVA, it’s unlikely that you’d be able to borrow through a Personal Contract Purchase (PCP) agreement. You would therefore need to look into Hire Purchase (HP) deals. These agreements work like any other form of secured loan, in that the amount you borrow is secured against the value of the vehicle.

With a hire purchase contract, you’d typically make an initial deposit, and then fixed monthly instalments. These would cover the cost of the loan, plus any applied interest. Essentially, HP is a way to spread the expense of a new vehicle, rather than having to pay as a lump sum. You’d then own the vehicle outright when your contract ended.

It is important to bear in mind that a hire purchase deal tends to come with higher monthly payments than some other forms of vehicle finance. This can be challenging for anyone on an IVA, as your budget would already be limited.

How to Apply for Vehicle Finance With an IVA

As mentioned above, in order to apply for vehicle finance while still in an IVA, you’d need to get approval from your Insolvency Practitioner. You can then apply as normal, though you should be aware that credit checks are standard. The lender is likely to undertake a full credit check, and will therefore see that you’re in an active IVA.

You might need to approach a specialist lender in order to obtain a car loan whilst in an IVA, though some mainstream lenders may consider your application. Brokers like Vehicle Finance Today could be able to help – we can ensure that you match the eligibility criteria of a lender before being matched with a suitable option.