Cars on finance can be a big problem with an Individual Voluntary Arrangement (IVA). Sometimes they can cause difficulty getting the IVA approved. Sometimes you face a major problem when the car finance end.
With more than a million cars a year in the UK being bought on finance, this is an increasingly common situation. And one that is being made worse in 2023 by the cost of getting a replacement car, with secondhand car prices being so high.
You will need to talk to your IVA firm about your particular situation. Also it’s best to have this conversation before your IVA starts, so you can be sure you will be all right when the finance ends.
Some IVA firms are too dismissive of this at the start, assuring you you will be able to get new finance when the current one ends. This is not the case… and you should consider talking to a different IVA firm that is more honest with you.
Contents
The four ways to finance a car
- HP is traditional Hire Purchase, where you own the car at the end of the term;
- PCP is a type of Hire Purchase where you have to pay a large balloon payment at the end to own the car, or hand it back;
- Leasing is a contract where you are renting the car, not buying it. It is returned at the end;
- Personal loan is where you borrowed from a bank and used that to buy a car.
A personal loan – the easy case
A personal loan is the easiest case because that loan is not secured on the car.
In an IVA, the bank loan will be one of the debts included, so you won’t need to carry on paying this and the bank cannot repossess your car.
You already own the car so it will be one of your assets when you look at setting up an IVA.
If it’s worth a lot, the IVA firm may suggest you sell it, buy a cheaper one and pay in the difference to your IVA. But that is pretty unusual.
More often the car you own is listed as an excluded asset. You must make sure that this is happening to your car – get it in writing from your IVA firm before signing up to an IVA.
HP, PCP & leasing – issues at the start of an IVA
For HP, PCP and leasing, the finance company legally owns the car, not you.
The credit involved in these contracts is not included in your IVA, and if you want to keep the car you have to carry on making the monthly repayments.
All these types of finance have two issues when an IVA is being looked at.
Are you paying too much each month?
Your creditors will want you to be able to get to work. But if your monthly car finance costs are very high, some creditors may think that you are paying too much.
Some seem to use a fixed number and may vote against an IVA if you are paying more than say £250 a month. Your IVA firm may be able to tell from looking at your creditors if this is likely to be a problem in getting your IVA approved.
The finance company may end your contract
Your car finance documentation may have a clause that says the lende can end the contract if you go bankrupt or enter insolvency, which includes an IVA.
Why they should want to do this is baffling if you are carrying on making the correct payments. Many lenders are happy for you to continue, despite the fact they could legally cancel the contract.
But a few lenders do decide to end the contract and you have to return the car. In 2023 this is not common but it can be a disaster if it happens to you.
And some of them only wake up to the fact you have an IVA after several months. So it’s possible you will get a nasty surprise letter after a while when you thought everything was going well.
So before you decide on an IVA, ask your IVA firm if they know what your particular lender is likely to do. You could also ask on the IVA forum for other people’s experiences with your lender.
If your car finance may be ended, discuss what you will do if that happens. For example you could take an IVA payment break for a few months and save up enough to get a cheap second-hand car. With an IVA on your credit record, you will no longer be able to get car finance at an OK price, see below.
What happens when an HP contract ends during an IVA
At the end of an HP contract, you own the car. If the car is worth a lot, your IVA firm may say that you need to sell it and buy a cheaper one, paying in the difference to your IVA for your creditors.
You no longer have any monthly payments to make, so your IVA monthly payments then normally increase as you have more spare income. So you shouldn’t expect to be better off at that point. This may mean you pay a lot more into your IVA than you expect.
Before starting an IVA, you must ask what will happen here. If you want the car to be excluded so you don’t have to sell it, tell your IVA firm this and get it in writing that you won’t have to sell it.
What happens when a PCP or lease contract ends during an IVA
(I am assuming here that you need a car. if you don’#’t, then the car goes back and your IVA payments go up as you are no longer paying the car finance. )
At the end of your PCP contract, your options are very limited because the IVA has wrecked your credit record.
- In theory, you could refinance the current car with the existing lender or get a new PCP contract – but this is almost always refused because of the IVA on your credit record.
- You could pay the balloon payment and keep the car. You will find it difficult to borrow the money yourself and would need the consent of your IVA firm. Could a relative do this for you? Your IVA firm may agree to you repaying the relative, using the money you had been paying to the car finance company, but it would be good to get this agreed before your IVA starts.
- You could get another car on finance from a lender such as Moneybarn that specialises in bad credit. This can be very expensive, with interest rates of well over 30%. As a result you will probably only be able to afford a pretty old second hand car.
- You could take an IVA payment break for some months before your PCP contract ends to save up for a cheap second-hand car.
When a lease contract ends, you have even fewer options – basically just options 3 and 4.
It’s best to talk about these options with your IVA firm before your IVA starts so that you have a plan for what to do.
If your IVA firm says you will be able to get another car on finance so long as it doesn’t cost more than your current one, ask what will happen if you can’t get a replacement that costs the same as or less than you are currently paying… Because it won’t be easy at all.
Has inflation made IVA payments too high?
Do you want to settle your IVA early?
Car finance affordability complaints
Chris Bone says
Hi
That’s an interesting article, thanks.
Just still on the subject of IVA’s but digressing slightly, we have had some interesting chats locally about people being “too equity rich”. So if say a client had £35k debts but £50k house equity and the figures were accurate, would it be fair to discount an IVA on the basis that creditors are unlikely to vote acceptance as the property could be sold and debts fully repaid, so why should creditors take a dividend on the debt?
Chris
Sara (Debt Camel) says
I get the impression that “too much equity” used to be very common but isn’t now. It may well come down to who the creditors are. And also of course how much the IVA is repaying.
The other problem is what happens if an IVA is agreed using the current Protocol and when it comes to equity release the debtor is made to take long term secured loan at an unpleasant rate of interest, eg 19%. Even if an IVA would be approved, it may well be better to sell the house and settle the debts rather than struggle through 5 years and then end up with that!
gh says
You didn’t mention salary sacrifice. My IVA only started this year but my car is very old and costing a lot in servicing and repairs. I have to have a car and I have the opportunity of salary sacrifice which would give me a reliable car and fixed costs. Is this borrowing though so can I do it?
Sara (Debt Camel) says
I think you need to discuss this with your IVA firm because it will be reducing your income. if your expenses are going to drop a lot, then it may be fine, but get this cleared first!
Hols says
I feel I have been misled into this IVA. I was told an IVA was Better than bankrupt because of my car and when it ended I can get another one for the same monthly amount. They didn’t mention that nobody would offer me a new finance deal because of the IVA!
Scott says
Would it be at all possible to get a car on pcp during a IVA I’m in my second year of my IVA and in need of a new car.
Thanks
Sara (Debt Camel) says
I don’t think any PCP lender will offer you credit. You may be able to get a car on HP from a bad credit lender – APR 30% plus usually.
Do you have a PCP deal that is ending? Was this discussed with your IVA firm when you took the IVA out?
James says
I entered an IVA about 8 months ago and My PCP is due to end next month. Which is fine, I’ve accepted I won’t be able to get another car and so am
Borrowing a relatives, however I will have to pay a fine for over mileage. Any ideas on this may be dealt with?
Sara (Debt Camel) says
Did you not discuss this with your IVA firm when the IVA was set up? How large is the fine likely to be and how large are your IVA monthly payments?
Zara says
Hi, I like this page, it’s very informative.
I’m wanting some advice. I’m in a situation where I will have to take out an iva. Would like to know what will happen when My hp ends before my iva? Had the hp since October 2018. And can I transfer ownership of my car to my husband before this time?
Sara (Debt Camel) says
First, have you had advice from a “proper” debt adviser that you need an IVA? By that I mean someone like Citizens Advice or National Debtline (call 0808 808 4000). IVA firms make £3500+ in fees from selling you an IVA and thousands of people are being missold IVAs when there are better (cheaper, quicker, less risky) debt solutions for them.
Tell your IVA firm about the HP. If it’s the sort where you own the car at the end with no large payment it’s usually OK. You would need to talk to your HP firm to ask if you can transfer it to your husband.
Ian liddle says
Great article, could you advise on this! I had a heart attack lost job etc and went into an Iva to clear the debts and relieve the stress, been in it now for 2 years I had a Range Rover on finance, the car went back no problems but the finance company won’t enter into the Iva and I’m having to pay on top of the payments to the Iva? Can they just opt out like that?
Sara (Debt Camel) says
do you have a house with equity?
was it planned you would have the car repossessed and the debt was listed in your IVA?
what does your IVA firm say?
Annija says
Hi,
I rang national debt service (is it a good company?) for debt solutions and with all options chose iva.
I’m due to sign paperwork and was just wondering about the car. I’ve got a lease car and it finishes next January. Would there be any chance that a company would just let me carry on with the lease or will I just have to return the car and be left without one?
And after iva finish, is it easy to get into leasing a car again or would I have to build my credit score to get anywhere?
Thanks
Sara (Debt Camel) says
That is a company that makes its money from getting people to agree to an IVA which it then passes to a proper IVA Firm. It is not regulated by the FCA as a debt adviser.
Before you sign the paperwork I STRONGLY suggest you talk to a proper debt adviser. Phone National Debtline on 0808 808 4000. They are proper FCA regulated debt advisers.
At the moment thousands of people are being missold IVAs when they have a better option, and too many IVAs are failing as a result, perhaps 30% of IVAs taken out now will fail when people are unable to afford the payments which are not very flexible,
An IVA may be right for you, I have no idea, but you need advice from a real adviser to tell.
If that firm had been any good, they would have told you what would happen with your lease car!
The article above sets out the problems you face. The lease may be ended when you start the IVA. If it isn’t there is almost no chance you will be allowed to carry on with the current lease when it ends.
At that point if your IVA firm agrees you need a car you will be able to pay the same amount to get a car on HP (you can’t lease a car with a poor credit record) but that will be at a VERY high interest rate eg 40% so the car will have to be a cheap second hand one. If your IVA firm thinks you don’t need a car you may just have to pay all the money you were paying to the lease car into your IVA as extra payments instead.
Holly Moorcroft says
Hi, my client has recently entered an IVA, however, through no fault of her own someone has written off her car. It has been valued at current market value for the third party insurer to pay, however, this does not cover the finance and balloon payment and she has no GAP cover. She is in a situation were she is unable to purchase a new vehicle because of her IVA and not being able to fulfil the current financial agreement, all through no fault of her own. Can you advise at all as this lady will struggle with work commute etc with no vehicle, which may well affect her ability to make her IVA payments?
Sara (Debt Camel) says
You can’t give debt advice to your client. I suggest you tell her to talk to her IVA firm about her options and if she is unhappy about how she can manage, talk to National Debtline on 0808 808 4000.
Joe Smith says
Hi there I am going through IVA but I do really need my car as I do have a disabled child. I bought my car through an unsecured loan
Are the creditors going to get my car ? Thanks
Sara (Debt Camel) says
When did you take this loan? How much is the car worth now?
What are the rest of your finances like, are you buying or renting? How large are your debts? Do you get disability benefits for your child? Have you been quoted a figure for monthly IVA payments?
Bart says
Hi
I have a car on lease
And IVA agree with that
But my lease its gonna finish next 1.5 year
Can I take lease car again or if that will be a problem ?
Sara (Debt Camel) says
Was this discussed with your IVA firm at the beginning of the IVA?
Damien Roberts says
Hi,
I recently got offered an IVA which could be approved , but I have PCP car finance which ends in 2.5 years. I am well aware that an IVA could effect the balloon payment being refinanced at that time, so my question is;
Would a debt management plan give me more flexibility in getting refinancing than an IVA?
Sara (Debt Camel) says
An IVA will make it impossible to refinance the balloon payment with the car finance firm or by getting a bank loan. Normally your only options here in an IVA are to hand the car back and get a very old banger or to take a HP contract on a cheap second hand car from a lender like Moneybarn that charges 49% interest.
What would happen in a DMP depends a lot on the numbers.
How large are the debts that would be going into your IVA? How much would you be paying a month?
Have you already defaulted on these debts?
Diane says
Can the finance company charge interest fir a hp hire during an IVA?
Thank you.
Sara (Debt Camel) says
Car finance debts are not normally listed in an IVA as being included unless the car has been repossessed.
If it isn’t included then yes the lender can still charge interest and yes you have to keep paying in full or lose the car.
Are you considering an IVA at the moment?
Diane says
Thanks Sarah, I’m already in an IVA, and my car finance soon comes to an end. As I was during the pandemic in a short pay freeze, they now put interests on, after failing to reinstate my direct debit payments.
Sara (Debt Camel) says
Well the IVA itself won’t prevent this.
if you think you have been treated unfairly because they did not restart direct debits, then you should complain to the car finance lender and take your complaint to the Financial Ombudsman if it is rejected.
Denise says
I’m still unsure on whether I should close all accounts with my bank, go into default and taken to the recovery team for 6 years with interest frozen or take out an IVA with payplan. Any advice please
Sara (Debt Camel) says
would you like to say something about your situation?
how much do you think you can pay each months to your debts? what does Payplan say you would have to pay in a DMP?
how large are your debts? are you buying or renting?
do you have a car on finance, if so when does it end? and is this HP (so you own the car) or PCP (so there is a big balloon payment)?
Denise says
They worked out I could afford 397 a month in DMP. not buying or renting but plan to buy somewhere down the line. roughly 25k debt. PCP finance that ends in 20 months.. big balloon payment. I think I will return the car at the end
MY bank has agreed to freeze interest and cancel payments and close the accounts (credit card and loans).. I believe this may be the best option over an IVA (Which would increase when I return the car). I think my bank are offering me practically the same deal as a DMP
Sara (Debt Camel) says
So you don’t need the car? In that case you will be able to Voluntarily Terminate the contract a bit before the end – perhaps 6 months, it varies with PCP contacts. This date will be clearly visible in your contract. If you do this you won’t owe any more and your credit record will not be affected by it. See https://debtcamel.co.uk/vt-end-car-finance-early/
Are all or almost all your debts from your bank? Do you have an overdraft?
Sally says
Hi, my friend is in an iva and was promised she’d be able to keep her car which was on a pcp contract. Her contract is up in a couple of months. She was planning on refinancing the balloon payment, which has been declined even though the iva company were guaranteeing. She has tried several car finance companies, ones that specialise in iva loans. As you say she has been turned down by them all. Where does she stand? The iva company said she could keep her car or did she misunderstand?
My Dad is also about to enter into an iva and he said his car is being “kept out of it” are people misunderstanding the situation? Are they not realising they will still be turned down for refinancing? My friend was initially told she would have to trade in her car but that would have kept her payments up high, instead of bringing them down.
I do think these companies should make this clearer at the start. If my friend can’t keep her car, she won’t be able to get to work.
Sara (Debt Camel) says
So two different situations.
Your friend. She may have misunderstood but that may well have been as the situation was not clearly explained. How large are her payments each month?
Your dad. Does he own the car or is it on finance? Does he have any other assets to protect, eg a house with equity? How large are the debts going into hiw IVA and how much is he being asked to pay each month? Can I ask how old he is?
Sally says
Hi, I’m sorry I don’t know how my friends payments are, when she thought she would have to pay for a new one, the payments were going to be £160, I think her balloon payment was fairly big, possibly £4000. I don’t know how much she pays into the iva. As for my Dad, getting financial information from him is quite difficult! I assumed he was paying pcp for the car, although it wasn’t new when he got it. He owns his flat, no mortgage payments left to pay. He borrowed £250 from me and asked me to get a loan for £1000 for him. He has paid back £50 of the £250 and made one payment back for the loan. He is 74.
Sara (Debt Camel) says
can you suggest that she posts here? doing this at third hand can miss key information. She may well have options but what they are I am not going to guess.
Also get your dad to post here. If he enters an IVA, he probably isn’t going to be able to afford to pay you the rest of the money you have lent him… If he is retired he may have other options apart from an IVA.
Sally says
Thankyou, I will suggest this site to them both. He is not retired- working full-time
Sally says
Hi, I just wanted to let you know my friend decided to take her car to a company that buys your car and settles the final payment for you. After the balloon payment of over £4,500 she still got £2,250 so I think that’s a win. Was 69 plate, with outstanding M.O.T.
Sara (Debt Camel) says
So she now has to buy a car with 2250?
Sally says
I think that’s the plan, to get a little run around. Yes.
Mark says
Hi there I’ve been in iva now for 2 n half years with no problems, recently got into money trouble again n missed payments on ma car which is om hp , they have now giving Me a letter saying going take ma car or pay rest in full. Is there anyway I can get them not to take my car
Sara (Debt Camel) says
how large are your IVA payments? are these really affordable, or is paying these the reason your are behind with the car payments?
how large are the car finance arrears?
Kath says
Mine is also a car question
I am nearly four years into my iva
My lease car was extended with permission from the provider but I am sure they won’t give me a extra year
My grandson said I could buy his car of him as he wants to upgrade and I can pay him back with no interest what I was paying for my lease till it paid
Do you think my iva provider will accept this
The car is only 2000 but will be mine
Sara (Debt Camel) says
It sounds a sensible option but you will need to talk to your IVA firm about this.
Kath says
Thankyou
I know I need to talk to them but was just feeling the water if it was a sensible idea to talk to them about
I actually have the lease car until end of February
When do you suggest I approach them
Is it to early yet
Sara (Debt Camel) says
I would contact them now. IVA firms don’t always move fast.
Kath says
Thank you for taking the time to answer me
Karen says
Hi I am currently in an IVA with just over a year to go. My car finance was included as I couldn’t afford to keep up with the repayments. Now I have found out that my car needs a new gearbox which is more expensive than the car itself and the insurance has doubled. I need a car to get to work. What can I do?
Sara (Debt Camel) says
how large are your monthly IVA payments?
have you tried to get lower car insurance quotes?
Karen says
They were at one point £166 a month but cost of living etc they were reduced to £69 as per my income and expenditure. Now I’m on a 4 month payment break.
Yes I have tried to get lower insurance but I was paying £38 pm and now I’m looking at £70 pm and that’s after nearly £130 deposit!
Sara (Debt Camel) says
so does the year to go take account of the 4 months that will be added on the end because of the break?
With the higher insurance will the IVA be unaffordable? Most people’s Council tax, water, broadband and mobiles will go up in April, but energy bills may drop and benefits will increase – do you have any feel for whether you will be better off at that point?