Can You Finance a Car with an IVA? Understanding Your Eligibility and Options

An Individual Voluntary Arrangement (IVA) represents a formal agreement between you and your creditors for repaying debts over time. Although IVAs can provide some assistance with financial obligations, they also have an effect on your ability to borrow, particularly for vehicle purchases. Those in an IVA who are thinking about buying a car may be curious about their choices and if it’s feasible. This guide analyzes IVA car financing options, the eligibility requirements, and alternative strategies for people with an IVA to obtain car finance.

What is an IVA?

Before you start looking into car financing, you need to know what an IVA entails. An IVA is a commitment that is legally enforceable which allows individuals to pay off a fraction of their debt over a set duration, usually lasting five years. Overseen by an insolvency practitioner, this setup protects you from creditor lawsuits and may lead to the cancellation of some of your debts. Being in an IVA is something that shows up on your credit file, which may limit your ability to get credit, including car loans.

Can You Get Car Finance with an IVA?

The quick answer is that you can finance a car while under an IVA, but the process can be more difficult. Traditional lenders generally regard people with an IVA as high risk, and this makes approval less probable. Still, a number of specialist lenders target providing financial assistance to those with bad credit or unfavorable financial situations, including those in an IVA.

You should know that getting credit while in an IVA will typically demand the consent of your insolvency practitioner. Not asking for approval can violate the terms of your IVA and lead to serious results, including the possibility of terminating the agreement.

Eligibility for Car Finance with an IVA

Your eligibility for car finance while in an IVA depends on several factors, including:

Current financial status: Lenders will review your income and expenditure to ensure you can afford the loan repayments without defaulting on your IVA payments.
IVA term: The longer you’ve been in an IVA and the more consistently you’ve kept up with payments, the better your chances of securing finance.
Deposit availability: A significant deposit can reassure lenders that you are committed to the purchase and less likely to default.
Credit score: Although an IVA negatively impacts your credit score, showing that you’ve managed to stay on top of repayments since entering into the arrangement can improve your chances.

What to Expect from IVA Car Financing Options

Securing car finance in an IVA is achievable, but the terms are usually more rigid. Here’s what you can expect:

Higher interest rates: The greater risk linked to lending to an individual in an IVA means lenders will typically levy higher interest rates. As a result, your monthly payments may be greater than those for people with good credit.
Smaller loan amounts: You may find that lenders restrict the amount of credit they are prepared to offer, which may require you to think about more budget-friendly vehicles or to make a larger down payment.
Shorter loan terms: In order to lessen the risk to the lender, shorter repayment periods might result in greater monthly payments.

Secured vs Unsecured Loans

When looking for car finance with an IVA, you’ll come across two main types of loans: secured and unsecured.

Secured loans use the car itself as collateral, meaning if you default on your payments, the lender has the right to repossess the vehicle. This option may come with slightly lower interest rates as the lender has a safety net.
Unsecured loans don’t require collateral but are harder to obtain and often come with significantly higher interest rates due to the additional risk for the lender.

Alternative Car Financing Options

If you’re finding it difficult to secure car finance through traditional or specialist lenders, other options exist:

Hire purchase (HP): This is a common option for those in IVAs as it allows you to spread the cost of the vehicle over a series of fixed monthly payments. However, you won’t own the car until the final payment is made.
Personal Contract Purchase (PCP): With this option, you’ll make lower monthly payments but will have to make a large final payment at the end if you want to own the vehicle outright. It offers flexibility but may not be ideal for someone with limited funds due to the IVA.

Can You Use a Guarantor?

Another potential option for obtaining car finance while in an IVA is through a guarantor loan. This type of loan requires a third party, usually a family member or friend, to guarantee the loan repayments if you cannot make them. Lenders are more likely to approve this arrangement as it reduces their risk. However, it’s crucial to consider the responsibility this places on your guarantor, and the impact on your relationship if things go wrong.

Final Thoughts

Navigating car finance while in an IVA is challenging but not impossible. Understanding the IVA car financing options available to you, assessing your eligibility, and weighing the risks of each option will put you in the best position to make an informed decision. Always consult with your insolvency practitioner before taking on any new debt to ensure that you remain compliant with the terms of your IVA and avoid any complications.