Some people have been told they can end their IVA by taking an “early exit loan” from Perinta Finance Ltd, via a broker called Just Lending. Creditfix, the biggest IVA firm in 2016, are sending these emails, but the loan may be available to people in IVAs with other firms.
This is a new concept for IVAs. Is it a good one? This will depend on the details of your particular situation, but this article looks at some points to consider.
UPDATE Aperture are now offering early IVA exit loans from Sprout – these are slightly different to the Creditfix/Perinta loans, and a lot better value for the person trying to end their IVA.
Perinta Ltd, who are authorised by the FCA, have been offering these “early exit loans” for a couple of months. The finance for these loans is being provided by a hedge fund. One of the directors of Perinta is Pearse Flynn, the CEO of Creditfix.
You can’t apply directly to Perinta for one of these loans, you have to be recommended by your IVA firm. Perinta want to be assured that the loan is only being offered to someone who has being managing their IVA repayments satisfactorily. If you have arrears, late payments or payment breaks, Perinta are unlikely to want to lend you money.
The early exit loan
A typical loan will be offered half way through an IVA. The loan amount will be the total of your remaining IVA payments. (At the moment the loans are being aimed at people who do not have a house, so there are no complications about needing to release equity.)
If Perinta agree to lend to you and you decide you want the loan, your creditors will then be asked to accept this as a Full & Final settlement – it’s a good deal for them so they probably will! After this, the money will be paid to your IVA firm who will close your IVA and you start making loan repayments.
The loan will be unsecured and at an APR of 29.4%. A £200 fee to Perinta is added at the start.
The length of the loan will depend on how much you repay each month. This won’t be more than your current IVA payment. See the following example:
- if you are exactly half way through a five year IVA, paying £100 a month, then you have 30 payments of £100 remaining, so the loan would be for £3,000;
- if your loan repayments stay at £100 a month, the length of the loan would be about 55 months, just over 4 and a half years;
- you would repay just over £5,500.
There is some flexibility to reduce the monthly payment by extending the term of the loan, but because of the high interest rate, the term can get much longer and you will repay a lot more in interest.
The email being sent illustrates this without figures. It isn’t clear what the upwards curving line on the two diagrams is – I think it’s how good your credit score is.
Will it improve your credit record?
Ending your IVA early will not delete it from your credit record – it will stay there for six years. This early exit loan will not start to improve your credit record until after the six year point.
The email emphasises the big savings you could make in future if you have a good credit record. It is true you can get credit more cheaply with a good credit record, even if the examples quoted seem a little on the dramatic side.
But it is possible to get a good credit rating after an IVA without this expensive unsecured loan. My article on How to improve your credit score after an IVA explains in detail how to do this. It’s not difficult and it doesn’t cost anything at all! Follow that process and early in year seven your credit score should be pretty good.
If you are wondering if this really works, here is one person’s story. Their Experian score started from 207 in the IVA. It went to 378 after their IVA completed, then climbed slowly in the sixth year to 458 as their defaults disappeared, helped by getting a Vanquis credit card. Their score then jumped to a great 846 when their IVA marker went at the end of the six years.
“It would be great to finish my IVA early!”
Many people are heartily sick of their IVA and may love the idea of getting out early. As one person here wrote recently, “I want the IVA noose gone from round my neck“. But you need to look at the implications of this loan, not just hear the words “early exit” and decide it must be right for you.
An IVA was supposed to get you out of debt after five years. This early exit loan extends this to seven years. It’s not just the extra cost, though that is significant, you are also taking on a lot more risk.
Think about what can go wrong in your life – redundancy, health problems, separation, rent increases etc:
- in the IVA, if a problem happens in the next 2 and a half years the IVA could be affected. But there are some ways for dealing with IVA problems (such as taking a payment break) and late in an IVA it may be possible to get the IVA completed on the basis of what you have paid in so far.
- with an early exit loan, if you have any big problems in the next four and a half years then you are likely to start getting late / missed payment markers or a default on your credit file.
So although the loan will help your credit score if it is repaid on time, it will also harm your credit record for another six years if there are any problems. And as the loan is 2 years longer than your IVA, you are exposed to these potential problems for longer.
Who gains and who loses from this product?
I think there are two winners here:
- your IVA firm IVA fees are mostly paid in the first half of the 5 year term. By ending the IVA at 30 months, the firm gets most of the fees but saves all the costs of the last few years.
- creditors Your creditors will get all their money in a lump sum in the third year. If anything had gone wrong with your IVA they may have got little or nothing. This loan gives them money sooner and removes a lot of risk – a big gain. This risk is being transferred over partially to Perinta (who are getting paid for it) and partially to the debtors.
The losers are the people who take out these loans who will be in debt for longer and paying back a lot more. That’s a high price to pay for escaping from an IVA early, especially as there are cheaper ways of improving your credit score.
This early exit loan may be a good idea for some people. If you are expecting a large pay rise soon, for example, although it would have to be really big to outweigh the extra cost of the loan.
But I think many people will do better to just carry on with their IVAs. This is especially important if you are finding life tough in an IVA – taking on this early exit loan will just prolong your problems.