For many people, an IVA can be a good way to repay unaffordable debts and avoid bankruptcy. But when it comes to borrowing more money, an IVA could stand in your way.
Before we get to grips with your borrowing options, we’ll take a look at exactly how what an IVA is – and how it can affect you.
Breathing space when you need it
So what is an IVA? Well, it stands for Individual Voluntary Arrangement, and it’s a way of writing off unaffordable debts.
Instead of declaring bankruptcy, you’ll agree to make manageable monthly payments to your creditors – usually over five to six years. The amount you pay back will be based on what you can afford.
How does an IVA work?
An IVA is a legally binding agreement which means creditors can no longer contact you or take any further action. During an IVA, all interest rates and fees attached to your debts will freeze.
You’ll agree to affordable monthly payments and stick to the agreement for up to six years. Once you reach the end of your IVA, any remaining debts will be written off.
How can I get an IVA?
The key word is voluntary. You’ll need to apply for an IVA – you won’t just be offered one.
To apply for an IVA, you’ll need to find an insolvency practitioner (IP). They’ll arrange an IVA proposal and speak to lenders on your behalf.
Your IP will take a look at your finances and help you work out a realistic repayment plan. They might suggest selling something to raise money to put towards your debts – like your car, for example. Once you’ve done this, your IP will prepare a proposal to show to your lenders.
If the majority of creditors agree with the proposal, your repayment plan will become legally binding.
Borrowing money with an IVA
If you currently have an IVA, you can apply for finance – however, you’ll need to ask your IP for permission if you want to borrow more than £500. That’s because they’ll want to check if you can afford the repayments on top of your IVA.
However, you might find it tricky when it comes to getting accepted. As an IVA suggests you’ve had trouble with debt, high street and mainstream lenders may reject your application.
How can you borrow with an IVA?
When it comes to finding finance with an IVA, you might struggle. Your credit score is likely to be suffering from the impact of the IVA, which can significantly reduce your chances of getting accepted.
And getting knocked back for finance can add further damage to your credit score. Each full application will appear on your credit report for other lenders to see. While lenders won’t know if your application was successful or not, too many in a short space of time can hurt your score.
That’s because it can suggest – rightly or wrongly – that you’re getting desperate for finance. Which can be a bit of a red flag for lenders.
Whether you’re looking for a credit card or loan, it’s best to see if you’re eligible before you apply. Many comparison sites will use a ‘soft search’ to get a picture of your financial background. An IVA will flag up with a soft search – so if you get the go-ahead, you should be able to apply with confidence.
Many bad credit loan or credit card companies will look beyond your credit score and accept your application with an IVA.
Should you borrow money with an IVA?
Before you apply for finance, it’s worth asking yourself whether your situation has changed. If your finances haven’t changed since you started your IVA, are you confident you can manage the extra repayments?
If you need the money for essentials or day-to-day costs, it might be worth speaking to your IP instead. If your budget isn’t working, your IP could arrange to lower your monthly payments. Or, if you’re borrowing to cover an emergency cost, you IP may be able to offer a payment holiday.
