One of the advantages of an IVA is that you will be able to keep your car. But what happens if it is on finance such as HP or PCP?
Included in this article:
- Can you keep paying car finance during an IVA?
- Is it ever possible to include the debt
- What if your finance agreement ends during an IVA
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Can you keep paying car finance during an IVA?
You will normally be allowed to keep your car when you start an IVA. There would only ever be a problem if the vehicle is extremely valuable.
If your vehicle is on finance, you have no need to worry. You can to continue making the payments. In other words, car finance can be left out of the agreement. This is because it is secured against the vehicle.
As long as you keep up with the payments, there should be no problem. You will be allowed to included an amount to cover these in your living expenses budget.
Most car finance companies will not be concerned that you have started an IVA, as long as you keep paying them on time.
Is it possible to include car finance debt in an IVA?
If you no longer need or want your vehicle, you can include the finance debt in an IVA. You simply stop paying and hand the vehicle back (a process known as voluntary surrender). Any outstanding amount on the credit agreement is then included in your IVA in the same way as any other unsecured debt.
You do not need to worry about the terms of your agreement. Just 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. You can mention you will be starting an IVA if you wish.
Once the car is collected it will be sold (normally at an auction). Any finance outstanding after the sale is known as a shortfall. You are still 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. It can included simply by estimating how much the shortfall will be.
What if your finance agreement ends during your IVA?
A typical monthly payment IVA will last for 5-6 years. As such, it is likely that your car finance will end during the Arrangement. What happens then will depend on whether the finance agreement was HP (Hire Purchase) or PCP (Personal Contract Purchase).
The situation is relatively simply if you have an HP agreement. Once the payments end, you own the car and can continue to use it as normal. However it is very important to understand that the money you were paying to the finance company will then have to be added to your IVA. As a result the amount the amount you pay into your IVA overall will increase.
If your vehicle is on PCP, the situation is more complicated. Generally speaking you would plan to hand the car back and then get finance to buy a new one. But if you are in an IVA, your poor credit rating will prevent you from using a mainstream lender. There are some specialist lenders, but they are more expensive. As such you are likely to have to get a cheaper car. An alternative option might be to simply refinance the balloon payment and keep the car.
Where your car is on PCP, make sure you discuss and agree what will happen at the end of your PCP agreement with your IVA company up front. If you don’t, the company may be expecting you to add the money you were paying to your IVA rather than using it for a replacement vehicle.
Make sure you get agreement from your IVA company before taking any new car finance during your IVA. If you don’t, it is likely that you are breaking the terms of your Agreement.
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