Car finance and an IVA

Car finance and an IVA

A significant number of new cars on the roads in the UK are purchased using car finance schemes. If you are considering an IVA what happens if you have a car on finance?

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Can you keep paying car finance during an IVA?

The key thing about car finance is that it is secured against the vehicle being purchased. There are various types of deals but the most common are PCP (Personal Contract Purchase) and HP (Hire Purchase). With these you don’t own the car. If the payments are not maintained the seller ultimately has the right to take the vehicle back (commonly known as repossession).

For this reason you would not usually include these debts in an IVA. If you did you would have to stop paying the monthly payments and the vehicle would be repossessed.

Given you need the car to get to work or for other valid reasons (and your payments are not unreasonably high) you will normally be allowed to keep paying for it. The debt is kept out of your IVA and a budget is included in your living expenses so you can maintain the payments. Most car finance companies are happy with this arrangement.

If car HP payments end during your IVA you will normally have add what you were paying towards your vehicle to your monthly IVA payment.

Could you include car finance debt in an IVA?

If you no longer need or want your vehicle it is possible to stop paying, give it back and include any remaining car finance debt in your IVA. This process is known as voluntary surrender. It can be very useful if you have a vehicle which is too expensive to run or you don’t want it because it is worth far less than the outstanding finance.

You do not need to worry about the terms of your agreement. Simply stop making the monthly payments. You can then tell the company that you will no longer be paying and they should come and collect the vehicle. Also mention you will be starting an IVA to the finance company if you wish.

Once the car is collected it will be sold (normally at a car auction). If there is any finance outstanding after the sale this is known as a shortfall. You are personally liable for this debt. However it can be included in your IVA because it is now unsecured.

You do not have to wait until your car is repossessed before you can start your IVA. Your IVA company can include it by estimating how much the shortfall will be.

Getting car finance during an IVA?

Getting a car on finance during and IVA is difficult because of your poor credit rating. However it is not impossible. There are some sub prime finance companies who will consider you.

That said the rate of interest charged will be high. As a result the monthly payments may be higher than you would normally expect. It will therefore be very important to consider whether you can afford these and maintain your agreed IVA payment.  

You should consider whether or not you will need to get new car finance before you start your IVA. You can then plan for it. If you already have a vehicle on PCP you will know when it will end and that you will need to change your vehicle. Potential increases in monthly payments may mean you need to take a cheaper vehicle or consider alternatives.

Before taking any new car finance during your IVA you must get agreement from your IVA company. If you do not it is likely that you are breaking the terms of your Agreement.

What happens to other finance agreements in an IVA?

Historically many household items such as furniture and electrical goods were bought on Hire Purchase (HP). This meant that the items were not yours until you finished paying for them. They could therefore be taken away if you stopped paying.

Nowadays the majority of credit you get in shops is not HP. It is a simple credit agreement. The finance is normally provided by a third party company such as Creation.

If you stop making the payments on these type of finance agreements the company has no right to take the goods away from you. These debts are unsecured and can be included in an IVA. You will not have to return the goods even though you stop making the payments.

There are some companies that still sell items using HP type agreements. One of the largest is Brighthouse. Debts owed to Brighthouse cannot be included  in an IVA unless you are prepared to return the items you bought from them.

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