Can You Get Car Finance With an IVA?

Financial difficulty can creep up on us when we least expect it, and its effects can be troublesome. What was once an affordable monthly payment becomes an ever-increasing debt and, what was once seen as a worst-case scenario, actually becomes reality. Unfortunately, for many, IVAs and even bankruptcy are often the only way out, and it is these that can have far greater effects than you may have thought.

You’ll be pleased to know though, if you are someone currently in either of these financial situations, that all is not lost and even though things can be tough, there are still many things you can do.

Take a car purchase for example. A common thought would be that should you require finance to secure your dream vehicle, a poor financial situation could stop you from being able to acquire a car. Not quite. You can still secure car finance with an IVA, you just may have to pass a few more checks and provide a little more info before you can get behind the wheel.

What is an IVA?

Your situation may not have reached the level of requiring an IVA just yet, but it could be getting close. After all, life-changing experiences can happen at any time and what was a manageable debt in the past may very fast become one which is unpayable. Likewise, a multitude of finance agreements may have been affordable one month but push you beyond the realms of affordability the next.

An IVA is a form of debt management that allows you to come to an agreement with the people you owe money to (your creditors). It is legally binding and makes payments more affordable than they may have been before the agreement came into force.

An IVA allows you to spread your payments over a period of years, normally around 5, at a rate affordable to you. However, should you have come into some money and want to clear the debt quicker, you can make a one-off lump sum payment to have the debt cleared faster.

Once it is in place, the letters, phone calls, and emails asking for the repayments will slow down and more or less cease. This can be a great relief due to the large amount of stress these situations can bring anyone.

Interest and charges will be frozen whilst you have the IVA meaning that each payment towards the debt goes towards clearing it rather than just covering any added costs.

Can I get car finance with an IVA?

You can certainly still apply for car finance with an IVA. Certain car finance companies are specialists in helping assist those in need of poor credit car finance. Direct lenders like us, Euphoria Finance, operate differently from many lenders and make it much easier for those that are frequently rejected.

That is not to say it is all plain sailing from there though. We may seek additional information from you to make sure that car finance does not make your situation considerably worse. This, like with many other lenders, will include receiving approval from your insolvency practitioner. This must be written approval and provided to your chosen lender upon request.

Other types of lenders will not be so open to such applicants and will refuse to offer car finance to anybody with an IVA. This is because the potentially poor debt management from the past has the lender seeing any applicant as a much higher risk.

Failing to seek approval from an insolvency practitioner will more than likely see any application rejected, your borrowing limits are capped during an IVA – to just £500 – and this would mean purchasing a car is no longer possible.

How long does an IVA stay on a credit file?

An IVA typically stays on a credit file for six years, so any application after this time will be significantly easier. However, during the six-year period, any successful finance application may see you faced with higher-than-normal interest rates. This varies though dependent on a myriad of factors and your specific situation at the time of applying.

Just remember that even if you clear your debt relatively fast, the IVA will still show on credit reports for six years.

With an IVA staying on your credit file for six years, you will see your credit score during this time affected meaning that other sources of financing such as loans, credit cards and mortgages are much harder to get.

Will applying for car finance with an IVA affect my credit score?

With a poor credit score likely, you may be concerned about applying for car finance with an IVA on your file. Don’t be. The simple act of applying for car finance with an IVA does not hinder your credit score.

However, take what we say here relatively lightly. Many lenders run a hard credit check. These DO affect your credit score. A soft credit check, on the other hand, does not. A quick car finance quote can go some way to giving you an idea of what amounts could be offered to you without affecting your credit score. Just be aware that a hard credit check will be carried out by all lenders once you enter into an agreement with a lender. As a result, your credit score will then be affected by your application for car finance.

What can I do to improve my car finance application if I have an IVA?

The first thing to do is approach your insolvency practitioner. Without their approval, you won’t be able to get far at all.

To gain this approval, you will need to show how affordable car finance will be for you. Factor in the costs for MOTs, fuel, servicing, tax, and any other costs associated with running a car. If you can show both the lender and your insolvency practitioner that you have better control of finances, they are more likely to say yes. They will also look at the justification for a car purchase. If you do not necessarily need one, you may find that approval is not given.

Secondly, look at your current outgoings. Are there any things you can remove, adjust, or pause to help you save a little cash?

What happens to my car on finance if I enter an IVA?

If you already have a finance agreement with a lender but you are about to enter an IVA or are in one, you will likely still be able to keep your car. However, this is another situation where individual circumstances come into play. If your car is seen as essential, then there will be no problem, if it is seen as a luxury, alternative arrangements may be considered.

At Euphoria Finance, we understand that many people encounter difficult financial situations and know it can make things much harder. That is why we work hard to ensure that car finance is affordable and achievable for many. Whether it be used car finance, or finance for a brand new vehicle, contact the team at Euphoria Finance today to see how we can help.