Cars on finance can be a difficult problem if you are thinking of an IVA or already in one. And with more than a million cars a year in the UK being bought on finance, this is an increasingly common situation.
It can make a big difference if you are leasing a new Range Rover or if you have a 5 year old small hatchback on HP!
You will need to talk to your IVA firm about your particular situation. But knowing a bit about what what your options could be can help with that conversation.
The types of car finance
I am using the following terms:
- HP for traditional Hire Purchase, where you own the car at the end of the term;
- PCP for the 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 for a contract where you are just renting the car, not buying it and it is returned at the end;
- Personal loan if you borrowed the money from a bank and used that to a buy a car.
A personal loan – the easy case
A car that you bought with a personal loan is the easiest case because that loan is not secured on the car.
If you start an IVA, the bank loan will be one of the debts included in your IVA, so you won’t need to carry on paying this loan in your IVA.
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 should sell it, buy a cheaper one and pay in the difference to your IVA.
HP, PCP and leasing – two issues at the start of an IVA
For HP, PCP and leasing, you don’t own the car. 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 leasing 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, your IVA firm may think you have cheaper options, eg using public transport.
The car finance company may end your contract
If you look at your car finance documentation, there may be a clause which says the finance provider can end the contract if you go bankrupt or start an IVA.
Why they should want to do this is a bit baffling if you are carrying on making the correct payments. Some lenders are happy for you to continue, despite the fact they could legally cancel the contract.
But some lenders will end the contract and want the car returned. And some of them only wake up to the fact you have an IVA when you are several months in, so it’s possible you will get a surprise letter 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 iva.co.uk 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.
What happens when your HP contract ends during an IVA?
At the end of your HP contract you now 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.
What happens when a PCP or lease contract ends during an IVA?
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 car with the current lender – but this is almost always refused.
- You could pay the balloon payment and keep the car. This is normally only possible if there is a relative who could do this for you as you would fnd it difficult or impossible to borrow the money yourself. 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. See Moneybarn’s page on car finance and IVAs. This can be very expensive, with interest rates of well over 30%.
- You could take a payment break for some months before your PCP contact 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 no one will offer you any credit at that point… Because it won’t be easy at all.
What happens if you can’t afford your IVA?
Do you want to settle your IVA early?
How IVAs work & what may go wrong
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.