Early IVA exit loans from Perinta offered in 2016 to Creditfix customers
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 is sending these emails, but the loan may be available to people in IVAs with other firms. Pearse Flynn, the CEO of Creditfix, used to be a director of Perinta, but no longer is.
This was a new concept for IVAs.
How does a Perinta early exit loan work?
You can’t apply directly to Perinta for one of these loans, you have to be recommended by your IVA firm. If you have arrears, late payments or payment breaks, Perinta are unlikely to want to lend you money.
A typical Perinta loan will be offered halfway through an IVA. The loan amount will be the total of your remaining IVA payments.
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 halfway 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. I think the upwards curving line is supposed to be 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. See Early IVA settlement and your credit record for details.
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.
“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 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 new 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?
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.
Then Sprout early exit loans were offered to Aperture customers
Aperture became the second large IVA firm in 2016 to be offering some IVA customers an “early exit loan”. They are similar to the Perinta/Creditfix loans but with some key differences.
These loans will be provided by Sprout Loans, a brand name of Asgard Financial Services Ltd who are authorised by the FCA. Mark Allen is one of the directors of Asgard and a very large shareholder. He is one of Aperture’s Insolvency Practitioners, but he isn’t a director of Aperture and hasn’t taken on any new IVAs for three years.
Sprout loan details
These loans are being suggested to some people who are three years into their IVA who have been coping well with the IVA repayments. This will include people with a house with equity, who normally have been expected to make an extra year of IVA payments instead of releasing equity.
The loan size will be the total of remaining IVA repayments (including the extra year for people with a house with equity) less a percentage. It is argued – and I agree – that creditors should accept less as they will be getting all the money up front and won’t be exposed to the risk of the IVA failing in the next few years. The size of this reduction will vary. For someone who was due to pay a further £2,400 into their IVA, in the early cases reductions of between £400 and £700 have been agreed by the creditors.
The interest rate on these loans will depend on the individual case but it’s likely to be in the same area as the 29.4% that Perinta are charging. No upfront fees are added.
The term of the loan will usually be three years, or four years for someone with a house with equity. If you are offered a loan you need to check the exact terms that are proposed.
But let’s look at what a three-year loan at 30% interest could look like for someone at the three-year point, who doesn’t have a house with equity, and who has 24 months of £100 payments remaining:
- if the £2,400 is reduced to £2,000, the loan payments would be £81 a month and the total cost would be c. £2,920. This is £520 more than would be paid if the IVA payments continued at the same amount;
- if the £2,400 is reduced to £1,700, the loan payments would be £69 a month and the total cost would be c. £2,480. This is only £80 more than would be paid if the IVA payments continued at the same amount.
Better than the Perinta loan, but still not good for most people!
These loans are a better option than the equivalent Creditfix/Perinta loans because they are shorter and cost less.
But this doesn’t mean that one of these Sprout loans is a good idea for you. The three main problems with them are the same as for the Perinta/Creditfix loans:
- most people will pay more with an early exit loan than they would by continuing in their IVA;
- you don’t need this loan to improve your credit rating – it’s easy and cheap to “clean up” your record when an IVA ends.
- a loan means you are taking all the risk of any problems in the next three years. That’s good for your creditors and bad for you. With this loan, any late or missed payments will mess up your credit record for a further six years.
The people who may benefit from one of these loans seem to fall into two groups:
- those who are sure they will pay less with the loan because they will expect to get more money over the next two years, for example a promotion, large bonus or a probable inheritance. If you think this is you, I suggest you do some calculations and think how certain something is. For example, if a new, better-paid job goes badly, you may wish you were still in the IVA.
- those who want to sell their house before the IVA ends, perhaps because of a divorce, job move or you need a bigger house. Here the loan may be a good idea but think about your alternatives. Could you agree with your ex to sell the house when the IVA has finished? Rent the house out and rent somewhere else? You won’t be able to get a new mortgage until the IVA marker goes from your credit record, six years after the IVA started – an early exit loan will not change this.
It can be hard to weigh up options involving risk, but don’t underestimate the “safe” option of finishing your IVA as planned. Your IVA was supposed to get you out of debt, not into more debt.
What happened to these loans after 2016?
In 2017 Creditfix started telling people about these loans before their IVA had started. Mr D said:
I was contacted by company called Creditfix to clear my debts in an IVA. I have about £30,000 debt (two loans, some credit cards, overdraft) and the advisor calculated my options. I was told 2 and half years of paying £150 a month, then get a £4,500 loan to pay rest. Is that ok???
I don’t think it’s OK for Creditfix to suggest to a potential client that an IVA could be 30 months long followed by a loan. That makes an IVA seem much easier than it may turn out to be – because if someone misses payments or needs a payment break, then they won’t be offered the chance to end the IVA early.
Perinta stopped offering these loans in December 2017 whilst it reviewed its business. Pearse Flynn ceased to be a director of Perinta at this point.
In September 2018 the Insolvency Service considered early exit loans as part of its review of IVA regulation. It said:
The loans… ultimately cost the debtor substantially more… are sold on the basis they will help the debtor in the long term, by improving their credit rating. There does not appear to be any evidence that this is actually the case… By concluding the IVAs early the IPs concerned will also benefit by not having the ongoing cost of managing the IVA so there may well be a conflict of interest.