Financing With IVAs & Credit Score Impact
Can Car Finance Be Included in An IVA?
Any form of Insolvency can feel daunting. Like a financial straight jacket, your options for future loans and finance suddenly close down and thin out.
But if you need finance for an essential car are you out of luck?
The answer may surprise you.
A fall into insolvency can be heart-breaking but it’s not the end of the world. Things will get better and sometimes that happens faster than you think so it’s important not to panic. If you arrange an IVA (an Individual Voluntary Arrangement) with an Insolvency Practitioner you can slash your debts and still have a small amount of flexibility going forward.
You might find that your credit score improves as you pay off your debts over time, meaning that you might be in a better position than you imagined by the end of an IVA. This will help you in getting finance in the future.
Bear in mind that an IVA only tends to last 5 years on average – though the length of your agreement is up to you and your Insolvency Practitioner. That’s not a massive length of time. And at the end of those five years you get to leave your debts behind you.
If you can wait to buy a car and have a bad credit rating, for example, your options will be much clearer once the IVA is complete.
If they see that you’re in an IVA and your Score is low, there’s a good chance they’ll say no.
But all is not lost.
But what about your options when you’re still in the IVA itself? This is where things start to get interesting.
An IVA is a negotiated agreement. The key word here is “negotiated”. Insolvency Practitioners understand that life continues to happen and that circumstances change. They’re not there to punish you, they’re there to help you. If you need a car for work or other essential purposes they will listen to you and help where they can.
You cannot borrow more than £500 without the express permission of your Insolvency Practitioner while in an IVA. If you do need to borrow for a car, however, don’t expect them to say No straight away. If the car will be used to find work or commute, for example, they may consider it a worthwhile investment, as it’ll help you to pay your debts faster.
Where things get a little trickier is obtaining the finance deal once you’ve been given permission.
An IVA – just like any form of Insolvency – makes getting credit and financing a car more difficult. This is because an IVA puts a big dent in your Credit Score and your lender or dealership will look at your Credit Score to assess how safe it is to lend to you.
There are Car Finance companies who specialise in poor credit loans and IVAs – companies like Money Barn, who are more flexible when it comes to getting you the car you need. They are specialists at understanding the intricacies of IVAs and Insolvency, and they treat your circumstances individually to help you get the car you need.
There are a couple of things to bear in mind, however:
Adding to your debt when in an IVA will further dent your Credit Score and may mean it will be lower when you exit your IVA. This may impact your future finance needs.
The APR that you will be charged on any car finance during an IVA may be higher than regular finance. This may mean that your monthly payments could be higher and it could take longer to pay back the finance on the car. It will also mean that the car could cost more by the end of the agreement.
It is worth talking to your Insolvency Practitioner before making any decision. If you want to talk through your options with one of our team, or if you want to search for the best car deal – whatever your circumstances – visit ChooseMyCar today.
Will My Credit Score be Improved or Affected by Car Finance?
Hubble Bubble Toil and Trouble,…
It can sometimes feel like the assumptions that banks, lenders and credit agencies make about your finances amount to little more than Hocus Pocus: a set of numbers plucked from your past and thrown into a pot. With a puff of smoke, your Credit Score appears and your fate is sealed.
At least, that’s how it can seem.
In reality, though, your Credit Score is more tangible than you think, and it’s easy to make a few changes in your life that could improve the score significantly. But what about taking out long-term finance, as you do when buying or leasing a car?
Can Car Finance Really Affect your Credit Score?
Let’s take a gander,…
So,… What About the Car?
If you make a serious enquiry about taking out a new credit agreement on a car, that will be reported back to a Credit Agency and may change your score, though it doesn’t always happen. It depends on how serious the agency considers the enquiry – a “soft” enquiry is unlikely to move the needle by much, if at all.
If your credit score is particularly poor, or if you have been declared Insolvent when this happens, an enquiry could dent the score more – so be careful how and when you make those enquiries.
Strange as it may seem, having another loan or lease showing up on your Credit History may actually improve your Credit Score, so long as you’re keeping up repayments. This happens because the Credit Agency has more evidence that you’re a safe bet – there’s more history to prove this.
The longer you have the finance, the better your score may become, and if you’ve nearly paid it off then that’s better still.
It doesn’t all lead to improvement, however.
If you miss a payment – or many payments – this will appear on your record and your Credit Score will suffer. And if, for some reason, you default on your agreements your Credit Score could fall very significantly, making future applications for Finance or Credit more difficult.
There’s also an interesting quirk where your score may drop after you’ve paid off your car. Seems counter-intuitive, doesn’t it? This happens mainly when you have other loans that are heavier and have longer to pay back. Without the car finance to improve your score – as it would when you’re close to paying it off – the overall score reflects more of these heavier loans.
This is a short term impact, however, and usually fluctuates back quite quickly.
Car Finance, like any credit or loan, will change your credit score, then. But so long as you are reliable in your repayments you don’t have very much to worry about.
Less “Toil and Trouble”, more Brmm brmm.
If you’re looking for your next car, come and visit us at ChooseMyCar now and see how we can help.