You may need a new car if yours breaks down and is too expensive to repair. But what are your options if you are in a DMP?

Jump to article contents:

• Can you buy a car during a DMP?
• How to get a car loan during your Plan
• Reduce your DMP payments to pay for a car
• Use a Payment Break to save for a car

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Can you buy a New Car during a Debt Management Plan?

A DMP (Debt Management Plan) can last a number of years. During this time you may need to buy a new car. Yours may have become beyond economic repair. Alternatively perhaps you do not own one but now need to.

There is nothing to stop you buying a vehicle. However the main issue is where the money will come from. Given you are in your Plan it is unlikely that you will have the required cash just lying around.

You could borrow from family or friends. But if this is not possible you will have to consider other options.

There is no legal reason why you cannot buy a car during a DMP. The problem is how you will pay for it.

How to get a Car Loan during your Plan

One of the affects of your Plan is that you will have a poor credit rating. As such you will find it difficult to borrow money to pay for a new car from a high street lender or standard car loan company.

Having said that there are some car finance companies who specialise in working with people with poor credit ratings such as Money Barn. It is possible that you will be able to get a loan from one of them.

It is important to remember that the interest rate you will be charged will be relatively high. As a result the monthly loan repayment will also be expensive.

Make sure you can still afford your Plan payments. Test this re-calculating your disposable income with the proposed car payment.

Reduce your DMP payments to pay for a Car

One option to help you pay for a loan is to reduce the amount you pay into your DMP. Because your Plan is informal you are allowed to do this at any time.

However it is important to remember the downsides of reducing the amount you pay. Firstly it will mean that your Plan will last longer. This is because the amount you pay back each month will be smaller.

Secondly the reduction must agreed with each creditor. If they do not agree they may restart collections action against you. They may also add additional interest to your account.

It is easier to negotiate reduce payments if your ability to make any further payments into your Plan would be at risk without help. This would be the case if you cannot get to work without buying a new car.

Use a Payment Break to save for a New Car

If getting a loan is simply not an option the only alternative is to save the money you need. Of course even if you can save a little each month it could be a long time before you have the money to buy a car.

Given this you could consider taking a payment break from your Plan. This means you stop your payments altogether for a defined period. This allows you to save much more money in a far shorter time.

Taking a payment break from your DMP can work well if you are able to save what you need in a reasonable period of time.

Before taking a payment break ideally you should agree it with your creditors. However if this is not possible you should continue making token payments to them. This will show your intention to keep paying.