Can I get car finance with an IVA?
An IVA affects your credit score, so it can make it more difficult to get approved for car finance. Find out what impact an IVA could have on your car finance application and what you can do to improve your chances of approval.
There are many types of car finance available, for those who aren’t able to or don’t want to pay for a car upfront. You’ll usually need to put down a deposit, and then make monthly payments over a set period of time.
If you currently have an IVA, or individual voluntary agreement, it’s not always impossible to get car finance but your options will be very limited. You may need to pay a bigger deposit or pay a higher interest rate on the agreement. Most importantly you will need permission from your IVA supervisor before you can apply for any credit over £500.
Here we look at all your options if you’re looking for car finance with an IVA from how it works and where to find it to how to boost your credit score and how long an IVA will stay on it.
What is an IVA?
If you’re struggling with unmanageable debts, an IVA is one way to help you get back on track. It is an agreement between you and the companies you owe money to, setting out how much money you’ll pay back to them each month.
How the IVA works will depend on your circumstances and the companies you owe money to, but it may be the case that you pay a set sum each month which is then split up between different organisations, who in return may agree to lower the total debt you owe them or freeze the interest.
The agreement is arranged by a licensed insolvency practitioner and though costs vary, there can be several thousands of pounds but this fee is usually included in the agreement and paid back through it.
Taking out an IVA will a big impact on your credit score, and there are other options of dealing with debt including debt management plans, but if you use it to pay off your debts correctly, it can improve your credit score in the long term.
Can I get car finance with an IVA?
If you have an IVA, your options will be pretty limited when it comes to taking out further credit. In the first instance, you will need to ask the insolvency practitioner who set up your IVA if you’re applying for credit of more than £500.
If they agree to let you apply for the credit, the lender you’re applying to will see your credit score and the IVA, as well as any other credit repayments you’ve missed or defaults you have.
Along with income assessments, lenders will look at your credit score to decide whether to lend to you. An IVA will have caused your credit score to fall, so lenders will see you as more of a risk than someone with a good credit history.
It might be that to seek help from a specialist car finance lender to assess your chances, or you may need to pay a higher cost than those without an IVA.
Very importantly, don’t apply for car finance without checking your chances of approval. Declined applications for credit will have a further negative impact on your credit score.
Will a completed IVA affect my car finance application?
When you complete your IVA it will still remain on your credit history but it will be marked as ‘complete’. It stays on your credit report for six years, starting from the date it was first approved.
Having a completed IVA on your credit score will impact your car finance application because lenders will be able to see that you have struggled to make repayments in the past. However, it’s not the only thing they will look at because they will also take into account your income when deciding whether to lend to you, and at what interest rate.
How can I get car finance with an IVA?
The first thing to do is apply to your insolvency practitioner and ask it if you’re able to make an application for car finance.
Even if you get permission, you may not be able to get a car finance agreement from a mainstream lender as they usually only accept those with good credit scores.
However, there are lots of specialist lenders around that can help you get finance, even with a poor credit history. There are also products like guarantor car finance that reduce the risk for the lender and could improve your chances of getting accepted.
Even though specialist IVA car finance options could help you to finance your car purchase, you need to bear in mind that they will normally come with higher interest rates than standard car finance for someone with a good credit score. Make sure you look at all the costs involved, including if you need to pay a deposit and how much it will be, the interest rate on the loan, and the monthly payments.
Before you make an application for car finance, it’s always worth using a free eligibility checker first. These tools will show you how likely you are to be approved for a new credit agreement without affecting your credit score.
Every time you apply for credit, lenders will conduct a hard credit check which will appear on your credit history. Too many applications will harm your score, so only apply for finance if you are confident that you will get accepted. Also consider if taking out more credit when you are still servicing an existing IVA is the right decision for you. Consider all your options including focusing on clearing the IVA over a shorter period of time if you find yourself in a position to afford more against repayments.
If the costs you’re being quoted are too expensive, or you’re not being accepted for a new agreement, it may be worth waiting until you’ve had time to save up a bigger deposit and build your credit score up as well.
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Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more