If you’re in an Individual Voluntary Arrangement (IVA), you may wonder about your prospects of obtaining a loan. An IVA is a formal agreement between you and your creditors to pay off your debts over a fixed period. Under this arrangement, taking out additional credit above a certain value typically requires permission from your insolvency practitioner.
Your ability to secure a loan during an IVA depends on your circumstances and the lender’s criteria. Most lenders see an IVA as an indicator of financial distress, making them cautious about offering credit. It’s crucial to consider the potential impact on your existing IVA terms and your overall financial stability before pursuing a loan.
How much debt do you have?
Understanding IVAs and Loans
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors. If you’re considering a loan during an IVA, it’s vital to understand its terms and impact on your eligibility for borrowing.
Basics of an IVA
An IVA is a structured, formal debt solution to help you pay off debts over a set period. It must be approved by creditors representing at least 75% of your debt value and supervised by an insolvency practitioner (IP). During an IVA, actions such as applying for additional credit are typically restricted, and failing to comply with the terms might lead to the IVA failing.
Eligibility for Loans During an IVA
While in an IVA, taking out additional loans is generally not advised. However, certain situations may require additional funding. You can only apply for credit under specific circumstances:
- For credit less than £500: You must inform the lender about your IVA.
- For credit over £500: Your IP’s written permission is necessary, and you’ll need to demonstrate that the new credit will not compromise your IVA payments or overall financial stability.
Taking out a loan without adhering to these conditions can result in legal action or the end of your IVA. Remember to consult with your IP before pursuing any additional borrowing.
Types of Loans Available
When considering loans during an Individual Voluntary Arrangement (IVA), understand that your options are limited due to the impact of the IVA on your credit rating. Nevertheless, two key types of loans may still be accessible: secured and unsecured loans.
Secured Loans
Secured loans require an asset as collateral, such as your home or vehicle, to back the loan. These are generally easier for you to obtain even if you are in an IVA, because the lender has a form of security that reduces their risk. An example is a homeowner loan, where your property secures the borrowed funds. However, it is crucial to make repayments on time, as failure to do so could result in the loss of your asset.
Unsecured Loans
In contrast, unsecured loans do not require collateral. These loans are typically harder to secure during an IVA due to the higher risk for the lender. The amount you can borrow will often be less, and interest rates can be high. Personal loans and credit cards fall into this category. Your IVA provider must approve any new unsecured loan, and it’s important to consider if taking out additional credit is manageable within your IVA commitments.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
Implications of Borrowing
Attempting to secure additional funds during an Individual Voluntary Arrangement (IVA) process is a matter that requires careful consideration due to its complex impact and potential risks.
Impact on IVA Terms
Your IVA: It specifies the terms under which you must operate financially, including restrictions on obtaining new debts over a certain amount without permission from your Insolvency Practitioner. New borrowing could lead to:
- Breach of IVA terms: Possibly resulting in the failure of the arrangement.
- Required permission: You usually need approval from your Insolvency Practitioner to take on new debt.
Risks and Consequences
Financial Risk: Borrowing more money could exacerbate your financial difficulties, potentially complicating or derailing your path to resolving existing debts.
- Credit impact: New loans could carry high-interest rates due to your credit status, increasing your overall indebtedness.
- Debt escalation: Additional borrowing may lead to an untenable debt situation and even risk the failure of your IVA, which can have legal and financial repercussions.
Lenders’ Perspectives
When considering a loan application, lenders closely scrutinise your financial history and current commitments. An Individual Voluntary Arrangement (IVA) is a significant factor in this assessment.
Credit Assessments
Lenders primarily assess your creditworthiness. Your IVA reflects on your credit report and signifies to lenders that you have previously struggled to repay debts. Credit scores are likely to be lower during an IVA, and this impacts the lenders’ decision-making. Lenders evaluate:
- Repayment History: Instances of missed payments or defaults.
- Current Debts: Outstanding debts, including the terms of your IVA.
- Affordability: Your ability to manage repayments alongside IVA commitments.
Lender Restrictions
Lending to someone in an IVA involves restrictions and a higher level of risk for the lender. Consequently, many mainstream lenders may be reluctant to offer you a loan. Policies may include:
- Conditional Lending: Loans might be offered at higher interest rates to mitigate risk.
- Lending Caps: You may find that you’re only eligible for smaller loan amounts.
- Strict Eligibility: Additional criteria beyond standard credit checks to ensure repayment certainty.
Debt help tailored to you
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
Alternative Financing Options
When considering financial solutions with an Individual Voluntary Arrangement (IVA), it is critical to explore options that are compatible with the terms of your IVA.
Grants and Assistance
Grants can provide you with funds that do not require repayment, making them an ideal choice if available. Seek out charity grants or government assistance aligned with your situation. These are available for various purposes, from debt relief to essential living expenses. It is crucial to check the eligibility criteria for each grant as they can be targeted toward specific groups such as low-income families, disabled individuals, or those experiencing financial hardship due to unique circumstances.
Credit Unions
Credit unions, as community-focused organisations, offer loans at competitive interest rates. These alternative lenders assess your financial situation holistically. To access their services, you must typically become a member, which usually involves residing within a certain locality or being part of a particular group. Credit unions also prioritise responsible lending, meaning they will consider your IVA and current financial obligations before extending credit to ensure it is manageable for you.
Conclusion
Securing a loan while in an Individual Voluntary Arrangement (IVA) is challenging due to the restrictions imposed by the IVA itself, meant to control your debts and finances. Credit is limited, and lenders are often hesitant to provide loans to individuals under these circumstances. However, exceptions exist; small-scale borrowing could be permissible with the consent of your Insolvency Practitioner (IP).
Remember, your ability to obtain a loan will largely depend on the stance of your IP and the terms set out in your IVA proposal. It is vital to consult with your IP before attempting to borrow additional funds to avoid breaching the IVA’s terms.
Before approaching new credit options, consider the implications it might have on your financial recovery. Any new debt can affect the success of your IVA and your overall financial health.
Should you find an opportunity to borrow, be prepared for higher interest rates or fees, as you may be viewed as a high-risk borrower. Maintaining regular communication with your IP and adhering strictly to the IVA terms can increase the likelihood of responsibly managing a loan within your IVA when absolutely necessary.
