The number of cars on finance has rapidly increased in the past few years. PCP is now by far and away the largest method of such deals. It allows us to effectively rent a reliable car with options to buy, give back or trade in at the end of the deal. PCP like HP finance deals cannot be included in an IVA as a debt. IVA’s deal in unsecured debts, and these car finance deals are secured on the vehicle. In order to keep the vehicle, the payments need to continue and will be included in an IVA proposal as an expense. However there are several things to bear in mind:
- the creditors may reject the IVA proposal if they feel the car on finance is an unnecessary expense or if they feel the payment level is too high
- debtors proposing an IVA should check the small print of the car finance deal – it is just possible that the car finance company will demand the return of the vehicle in the event of entering into an IVA
- what happens at the end of the arrangement? If there is a final (balloon) payment to be made, then the obvious question is how can this be done when spare income is going towards the IVA? If the car is being traded for a new one – there is a question to be asked about credit rating which may be a lot worse due to the IVA. And then for the person who will stop car finance payments mid-IVA, the assumption will be that their disposable income will increase at this point and the IVA payment can similarly increase.
There is the possibility that the car finance is not secured on the vehicle and can be included as a debt in an IVA. This is where someone has bought a car from an unsecured loan. The money is owed but the vehicle is owned by the debtor. Reading the nature of the car finance arrangement is important.
Despite all the caveats – many successful IVA’s are undertaken by people who continue to pay their car payments during the IVA. Having a car on finance is not an automatic barrier to proposing an IVA.