IVA and car finance: your honest options explained

Are you looking for car finance with a current or completed IVA? Learn how the process works and explore your options.



If you owe debts to more than two creditors, you may have an individual voluntary arrangement (IVA). This limits how much you can spend on food, clothing and leisure while you pay off an agreed amount of money.

It doesn't mean, however, that you can't apply for car finance. Yes, there are steps you have to take that people without an IVA don't have to. But there's no reason why you should have an IVA and not buy a used or new car on finance.

Here at Zoomo, we specialise in car finance for people with bad credit. So, if you're in the situation we've described, get in touch. We'll be more than happy to talk you through your options.

What is an IVA?

An IVA is an individual voluntary arrangement. It's a legally binding agreement between you and your creditors (the people or organisations you owe money to).

You pay back all or part of your debts over a set period to an insolvency practitioner (IP). The IP then divides the money among your creditors.

An IVA typically lasts four years. Once the last payment is made, any remaining unsecured debt you haven't paid off is written off.

Can you get car finance while in an IVA?

Having an IVA doesn't stop you from getting car finance. It does mean, however, that you have to clear some hurdles.

First, you must get written permission from your IP or supervisor. This is because most IVAs have a clause stopping you from taking on new credit over a threshold without permission – typically a threshold of £500.

To get written consent, you also have to demonstrate that the car is essential and that the monthly payments fit within your agreed IVA budget.

Secondly, you'll need to apply to specialist lenders. Most lenders will decline applicants with an active IVA, seeing them as too much of a financial risk.

However, bad credit brokers (like us) will look at your recent financial behaviour, not just your credit score. This means you stand a far better chance of getting car finance even with an outstanding IVA.

Finally, you need to choose the right type of car finance agreement.

Hire purchase (HP) is usually the most realistic option. That's because it provides fixed monthly payments without a large balloon payment at the end of the agreement.

When applying for car finance with an IVA, it's important to carry out soft credit searches. This means using an eligibility checker rather than applying directly for finance. A car finance broker can also do this for you.

This is important because soft searches aren't marked on your credit score whereas recent hard searches can make lenders think you're less creditworthy.

Can you get car finance after your IVA is completed?

Once your IVA is completed, it becomes easier to get car finance. That's because finance brokers and lenders will look more closely at your current money management than your completed IVA.

You'll be removed from the Individual Insolvency Register three months after your IVA ends. However, the arrangement will remain on your credit file for six years from its start date.

When applying for car finance, you should take the same approach as when you have an active IVA. Hard searches hurt your credit score, so make sure you use soft-search eligibility checkers – or get a car finance broker to use them for you.

What are the different types of car finance?

There are four main ways to finance a car.

1. Personal loan

This is where you borrow money from the bank or other lender and use it to buy a car from a dealer.

Under this arrangement, you own the car from day one and make set repayments (with interest) to the lender.

2. Personal contract purchase (PCP)

This is where you pay an upfront deposit followed by fixed monthly payments.

At the end of the agreement, you hand the car back and either start a new deal or pay a large "balloon" payment to own the car.

3. Personal contract hire (PCH)

This is essentially a long-term rental agreement, where you pay fixed monthly payments but never get to own the car. At the end of the agreement, you hand the car back to the rental company.

4. Hire purchase (HP)

This is where you pay a deposit followed by fixed monthly repayments. These cover the entire value of the car with interest. After the final payment – and a nominal option-to-purchase fee – you own the car outright.

What's the best kind of car finance if you have an IVA?

In practice, the most realistic kind of car finance when you have an IVA (or have recently completed one) is an HP agreement. Unlike a PCP arrangement, there's no balloon payment waiting at the end of the agreement.

In this situation, your HP agreement this will need to be arranged through a specialist bad credit car finance broker like us.

What car can I get with an IVA?

There isn't a fixed amount of car finance you can get with an active IVA. The limit is typically determined by:

• Your disposable income after IVA payments and living costs
• The lender's affordability assessment
  
  

And as with any borrowing under an IVA, you'll need written permission from your IP if you're looking to borrow more than £500.

In practice, people with IVAs can typically get older used cars worth £4,000 to £10,000. This amount can increase if your income is strong, the IVA is running successfully and affordability is clear.

Based in Newcastle upon Tyne, Zoomo helps people secure car finance, no matter their credit history. Check your finance eligibility today or apply online – it only takes a few minutes.