An Individual Voluntary Arrangement (or an IVA) is a popular debt solution, in which your debts are “frozen” whilst you pay back set amounts each month over an agreed time period.
Once this time period has passed, the remaining debts could be written off, leaving you with little to no debts left to pay. This is a legally binding agreement which you enter with creditors, arranged and supervised by a licensed Insolvency Practitioner (IP). An IVA can span many years (most often 5-6 years) and we know a lot can change in this time, including needing to borrow further.
In this blog, we explore what types of credit you can get with an IVA and the impact this could have on your debts and credit score.
The Types of Credit You Can Get Whilst Enrolled on an IVA
The answer to our original questions is yes, you can take out further forms of credit whilst you are on an IVA. However, the types and amounts you are allowed to borrow are heavily restricted.
Before borrowing further, you must get written permission by your previously mentioned Insolvency Practitioner (IP) for any amount of money over £500. If you borrowed without permission, you could be breaching the terms of your IVA.
This won’t automatically cause your IVA to fail and instead you will most likely be issued with a breach notice. This notice will tell you how you have broken the terms of your IVA and how you can resolve the issue. If the breach is not remedied within the agreed timescale, your IP will meet with your creditors who could choose to terminate your IVA.
This rule applies to all forms of credit, including (but not limited to):
- Credit cards
- Store cards
- Personal loans
- Payday loans
- Overdrafts
This also applies to borrowing from your friends and family too.
How Easy Is It To Get Credit On An IVA?
As we have discussed, if you need to borrow any amount over £500, you will need to consult your IP before borrowing. They will then take into account your current IVA and financial situation and decide if this is the best option for you. If you are repaying a large sum of money to your current creditors, it is unlikely your IP will allow you to borrow further.
Don’t forget, even if your IP approved the credit, you may find lenders will be hesitant to grant you any additional money, based on your current financial situation. An IVA and your existing debts will show on your credit file as well as the Insolvency Register, which will be checked by any future lenders. If you do get approved, lenders may not be willing to offer you their best rates.
How Borrowing Further Can Impact Your IVA and Credit Score
Your credit rating is an assessment of your credit worthiness. It will take into account your credit history, if you have made previous repayments or if you have missed any and use this (alongside other information) to assign a value to your credit worthiness. The higher the number, the better your credit rating and the more likely you are to be accepted for credit.
An IVA will negatively impact your credit rating, as a record of your IVA will remain on your file for many years after the solution has finished. Borrowing on top of this can further damage your credit score, especially if you cannot make the repayments.
It is important to note here, although an IVA will show on your credit file, it will not be as damaging as debt which is left unpaid. Once your IVA is complete, you can begin rebuilding your credit score. Check out this helpful article from Money Helper on how to rebuild your score here.
What To Do If You Are Struggling With Your IVA Payments
If you are looking to borrow further to help with your IVA payments, it is advised that you speak with your IP about your struggles first. With the cost of living increasing, it is not uncommon for those enrolled in a debt solution to struggle with their repayments. However, there are a number of steps you and your IP can take to ensure you can continue meeting repayment terms (such as adjusting your budget or granting a payment holiday).
Have Questions About IVAs?
If you think an IVA could be for you or you have any further questions about the debt solution, our advisors can help. You can get in touch with us via email, phone, text or get debt advice through our tool.
