Can you get a loan with an IVA?

What is an Individual Voluntary Agreement (IVA)?

An Individual Voluntary Agreement (IVA) is a formal agreement between you and your credit providers to pay back your debts over a set time.

Government figures show that 64,050 IVAs were registered in England and Wales in 2023. This was lower than the record-high number of 87,865 seen a year earlier.

Your IVA will be approved by the courts and you’ll need to agree to make regular payments to an insolvency practitioner (IP)

An IP is a debt professional licensed by the Insolvency Practitioners Association who will administer your arrangement. Your regular payments will then be divided between your creditors.

If you have an IVA, your creditors must stop charging interest on your debts and stop chasing you to repay your debts.

You can use an IVA to pay off debts such as:

• Personal loans
• Overdrafts
• Credit cards
• Store cards
• Council tax arrears
• Hire purchase debts
• Money you owe to HMRC
• Mortgage shortfalls

It’s possible to carry out debt consolidation with an IVA, as you’ll combine multiple debts into one monthly payment. However, an IVA is not the same as a debt consolidation loan. This is where you take out a new loan to pay off all your existing debts and then make monthly repayments to one lender.

How does an IVA affect loan eligibility?

An IVA can affect your chances of getting credit in two key ways:

Impact on your credit score

You can get credit with an IVA but the IVA will be recorded on your credit file and your credit score will go down as a result. A lower credit score can make it harder to get accepted for loans and other forms of credit.

Most IVAs last for five years. But they will remain on your credit file for a year after you’ve made your final payment, making it six years in total.

Once you’ve completed your IVA, you’ll receive a completion certificate. This provides proof that your debts have been cleared. You can show your certificate to credit reference agencies (Experian, Equifax and TransUnion) and future lenders, and take steps to rebuild your credit score.

The best way to boost your credit score is by paying bills on time, improving debt management and regularly checking your credit report.

Perceived risk

When you apply for credit, a lender will review your credit file to see how responsible you are as a borrower. If you have an IVA, this tells the lender you’ve had problems managing your money and repaying debts in the past. Because of this, the lender will likely view you as a higher risk and may be more reluctant to let you borrow.

Rules around borrowing money during an IVA

It can be more challenging to get accepted for a loan if you have an IVA. Because you’ve agreed to pay a regular amount towards your debts, this can limit your chances of borrowing additional funds.

Lenders may therefore turn you away or, if your application is accepted, you will likely pay a higher interest rate. This could make it harder to repay the loan.

You also won’t be able to borrow more than £500 from a lender unless you have written permission from your IP. If you don’t tell your IP that you want to take out a larger loan, you could break the terms and conditions of your agreement and the IVA could be at risk.

Before your IP can grant permission, it will consider:

• Whether the loan is necessary
• How long it will take for you to repay the loan
• Whether you can afford to make the repayments on top of your IVA payments

If you’re taking out a loan to help pay essential bills, your IP might suggest changing your monthly IVA repayments to a more affordable amount instead. Good financial management is essential during your IVA.

Can I get a loan after an IVA?

You might be able to get a loan after your IVA has been settled. But it’s best to wait until it has been completely removed from your credit record. That way, your chances of getting accepted for a lower-interest loan will be higher.

If you can’t wait that long, you might be able to get a credit union loan with an IVA. This could be a better approach than going to a high street bank.

Can I get a loan to pay off an IVA?

You might be able to apply for an IVA settlement loan to pay off your IVA early. But these loans often charge high interest rates. This means you could end up paying a lot more than you would if you stayed on your IVA.

Potential borrowing options

If you need to borrow money when you have an IVA, you could consider the following options:

Unsecured loans

An unsecured loan is a type of loan that doesn’t require you to use an asset, such as your home, as security. You receive a lump sum that you then repay in regular instalments with interest, over a set term.

Credit cards

A credit card is a flexible way to borrow funds. You can borrow up to your pre-agreed credit limit and repay what you’ve spent in flexible monthly instalments. As long as you pay off the minimum amount each month, you can choose how much extra you wish to pay on top. But if you don’t clear the balance, interest is usually charged.

Overdrafts

If you have an arranged overdraft on your current account, you could use this to borrow funds fast. However, interest rates can be high so it’s important to repay what you’ve borrowed as quickly as you can.

Family and friends

If you want to borrow more than £500 from family and friends, you will still need permission from your IP.

Also keep in mind that if you repay your friends or family first, this is seen as preferential treatment. This means you’d be prioritising them over your credit providers in your IVA.

Secured lending

If you take out a secured loan, you’ll need to use an asset, often your home or a car, as security. This reduces the risk for the lender, so it can be easier to be accepted for this type of loan. But it also means that if you fail to pay back the loan, your lender has the right to sell your asset to get its money back.

How to apply for a loan with an IVA

If you want to apply for a loan with an IVA, follow the steps below:

1. Shop around: It can be harder to find a lender who will be willing to offer you a loan with an IVA. You may need to approach specialist online lenders. But always check the lender is regulated by the Financial Conduct Authority (FCA) by using the FCA register.
2. Compare rates: You ideally want to find a loan with the lowest interest rate possible.
3. Gather together your paperwork: You can expect loan approval criteria to be stricter if you have an IVA. That means providing more documents, including proof of income, recent bank statements, ID and address verification.
4. Make your application: You’ll usually be able to fill in an online form, providing personal details, such as your name, address and contact details. You’ll then need to wait to find out if you’ve been approved.

Considerations when borrowing during an IVA

Before deciding to take out a loan with an IVA, keep the following points in mind:

Impact on IVA terms

Be sure to check the terms and conditions of your IVA carefully. Check that taking out a loan won’t affect your agreement. Speak to your insolvency practitioner (IP) if you’re unsure.

Your IP might be able to help you find a different solution to borrowing more funds. This could be through adjusting your IVA to reduce payments or borrowing through a salary reduction scheme, such as a train season ticket loan from work.

Remember, too, that if you want to borrow more than £500, you must have permission from your IP first. If you don’t, you could put your IVA at risk.

Legal implications and consequences

Your IVA is a legally binding agreement and will be supervised by your IP. If you don’t get permission from your IP before taking out a loan, you will likely be issued with a breach notice. This means you’ve broken the terms and conditions of your arrangement.

If this happens, you should be told what you can do to resolve the issue. If you choose not to do this within the given timeframe, your IP could meet with your creditors and choose to cancel your IVA.

Summary: Getting a loan with an IVA

Applying for credit when you have an IVA is not a decision that should be taken lightly. It’s crucial to discuss your options with your insolvency practitioner first as there may be alternatives to consider.

Borrowing on top of your IVA can further damage your credit score, particularly if you are unable to keep up with your repayments.

If you’re struggling with your finances, it’s worth speaking to a debt charity for fee-free advice.