Iva Car Finance - Financial Power

An IVA, or Individual Voluntary Arrangement, can sometimes be an option for financing a car, but it’s a complex situation with limitations and potential risks. An IVA is a legally binding agreement between you and your creditors to repay your debts over a set period, usually five to six years. During this time, your financial actions are closely monitored, which directly impacts your ability to secure car finance.

Why is it difficult to get car finance with an IVA?

Lenders view individuals in IVAs as high-risk borrowers. The IVA is a clear indication of past financial difficulties and a limited ability to manage debt. This translates to a greater likelihood of defaulting on future loan repayments. The IVA effectively restricts your access to credit, and any new borrowing typically requires the permission of your IVA supervisor.

Potential Routes to Car Finance During an IVA:

While challenging, securing car finance during an IVA isn’t impossible. Here are some possibilities, each with its own hurdles:

Permission from your IVA Supervisor: This is the first and most crucial step. You must demonstrate a genuine need for a vehicle, such as for commuting to work when public transport is unavailable or for essential family needs. You’ll need to provide detailed justifications and a realistic budget. The supervisor will assess the affordability of the repayments within your IVA agreement, ensuring it doesn’t jeopardise your existing debt repayment plan.
Specialist Lenders: Some lenders specialize in providing finance to individuals with impaired credit, including those in IVAs. These lenders typically charge significantly higher interest rates and require larger deposits to compensate for the increased risk. Be prepared for less favorable terms.
Guarantor Loans: A guarantor loan involves someone (usually a family member or close friend) guaranteeing your repayments. If you fail to make payments, the guarantor becomes responsible. This can improve your chances of approval, but it puts the guarantor’s credit rating at risk.
Cash Purchase: Saving up and purchasing a used car outright with cash is often the most sensible option. This avoids taking on new debt and simplifies your financial situation during the IVA.

Considerations and Risks:

Before pursuing car finance during an IVA, carefully consider the following:

Increased Debt: Taking on new debt while in an IVA can be risky. Ensure the car repayments are truly affordable and won’t strain your budget. Defaulting on the car loan could lead to repossession and further financial hardship.
High Interest Rates: Expect to pay significantly higher interest rates than someone with a good credit score. This will increase the overall cost of the car considerably.
Impact on IVA: Failing to adhere to your IVA terms, including taking on unapproved debt, could lead to the IVA failing. This could result in your creditors pursuing you for the full amount of the original debt, potentially including interest and charges.
Long-Term Financial Implications: Even after the IVA is completed, the record will remain on your credit file for six years from the start date. This will continue to affect your ability to access credit for some time.

Alternatives:

Explore alternatives to financing a car, such as: public transportation, carpooling, cycling, or leasing. Weighing the pros and cons of each option is crucial before making a decision that could negatively impact your IVA and overall financial stability.

In Conclusion: Securing car finance during an IVA is a challenging and potentially risky endeavor. Thorough research, consultation with your IVA supervisor, and careful consideration of the long-term financial implications are essential. Prioritize staying within the terms of your IVA and exploring alternative solutions before taking on new debt.