Affording a new car can be difficult for anyone, especially if your sights are set high on luxury brands, models, and how many previous owners it has. That being said, it’s even more challenging if your credit history has a red mark across it for lenders. See our dedicated service page if you need help with car finance with bad credit.
There are many things which can impede your financial health to lenders, but one of them is an IVA (individual voluntary agreement).
What is an IVA?
Unlike other red marks against your financial history, an individual voluntary agreement is as it says, voluntary. It’s something that you would enter into between you and creditors where you pay back your debt over a certain amount of time. You may enter into these agreements in a situation where you have a large debt you cannot repay and you agree to an IVA in order to avoid bankruptcy.
It’s important to note that the IVA agreement isn’t just a simple policy whereby you pay back your debts, there are other factors at play. For example, creditors have to stop chasing you for payments and cannot add any more interest onto your debt. Often it is the interest on your debts that will leave you feeling hopeless.
During the time of an IVA you will also be forced to inform your creditors if your income increases or you get any other money. This doesn’t always mean that you have to increase debt repayments but you must inform them. Possibly the most difficult term of an IVA to swallow is that during the six years, you cannot take out new credit without permission.
How long does an IVA last?
Similar to a CCJ an IVA will remain on your account for six years. During that time, whenever you apply for any type of finance or loan, you will often be met with difficulties due to the IVA. After the six years is up, you will find it much easier to apply for finance. But does that mean that you will be rejected for all loans and finances during that time? No.
As we mentioned before, during the six years of your IVA you will need to gain permission before obtaining more credit. This can become quite the stumbling block when it comes to getting finance with a car so it’s important to recognise that unless your debt is above £10,000 an IVA may not be the best agreement to enter into.
Getting car finance after an IVA
Once you’ve served your six years of an IVA it’s true that it’ll become significantly easier to get a car financial agreement. But if financial hardship is what led you to sign an IVA to begin with, you’ll want to make sure that you’re selecting an agreement that works for you. This means not taking on more finance than is necessary.
Car finance after an IVA has been served
Getting a car on finance is not something you should enter into just because you want to have a new car. In the last 20 years, car technology has advanced so much that a car which is 10+ years old is perfectly suitable for driving around and having a short commute to work. Of course, you may not have a couple of thousand pounds saved up to buy a car, but we urge you to look into your options before entering an agreement just because you can due the IVA ending.
That being said, we recognise that people often opt in to car finance agreements because they commute a long distance for work, they need a bigger car due to expanding family, or they don’t have enough money to buy a car outright. This is where selecting your finance deal carefully is important.
After your IVA has been served, it’s important to consider your monthly outgoings. This will tell you how much you can afford each month to spend on a car. When looking for a new car, make this monthly amount known to the dealership. Making the car salesperson aware of your financial capabilities is a great place to start, it means you avoid looking at cars you simply cannot afford.
Just because you can afford an amount of money per month, doesn’t mean you have to reach it. Let your car salesperson know that you want to keep repayments as low as possible, they’ll give you a few tips on how they can do this with the type of agreement but the most important factor is getting the cheapest car possible. If the cheapest car on the lot works for you and your needs, it should be carefully considered.
Types of car finance agreements
There are two types of common car finance agreements that most people enter into. The first is a PCP (personal contract purchase). The monthly repayments on a PCP are lower on a monthly basis, this is because you don’t pay the entire amount that you borrow during the length of the agreement. Instead, you will receive a large lump sum bill to fulfil. You can choose to pay this in which you will own the car afterwards or you can return the car and enter into a new agreement.
Another option is to opt into a HP (hire purchase) agreement. Monthly repayments for a hire purchase agreement are more. But this is because you will own the car outright. If you’re entering into a car finance agreement because you cannot afford to buy a car outright initially, a hire purchase may be a good idea if the monthly bill is affordable. That way, once the agreement is over, you own the car. Note that coming to the end of a financial agreement in a positive way can also reflect well on your credit score.
Of course, there are ways to enter into these agreements while you’re still under an IVA. However, unless it’s essential, don’t add too much onto your plate. Consider whether entering into a car finance agreement is essential now, or whether you could save for a year before buying a car outright.