Loan Options Available During and After an IVA Explained: Guide for 2024

Are you dealing with an Individual Voluntary Arrangement (IVA) but still need financial support? You’re not alone. Despite the challenges, there are loan options available to help you manage your situation. 

In this article, we’ll explore the various loan choices designed for individuals with an IVA. Stay tuned to discover how you can access the financial assistance you need.

So, without further waiting, let’s get started…

Understanding IVA’s

An Individual Voluntary Arrangement (IVA) is a formal agreement made between a debtor and their creditors to pay off their debts over a set period. It’s a legal process designed to help individuals overcome substantial debt while avoiding the more severe consequences of bankruptcy. 

So what exactly do you need in order to be eligible for an IVA?

Minimum Eligibility Criteria for an IVA 

Your eligibility for an IVA depends on several factors. Below are the key factors you need to fulfil in order to win an IVA:

1. Disposable Income: You need to demonstrate that you have some disposable income left at the end of each month after covering your essential expenses. If your leftover money is less than £100, your IVA application may be rejected.
2. Payment Ability: Even if you don’t have £100 left over each month, you might still qualify for an IVA if you can make a lump sum payment to your creditors. This could come from selling high-value items or receiving a windfall.
3. Income Source: People with benefit-only incomes may struggle to meet the eligibility criteria because their income is fixed and may not leave £100 spare.
4. Amount of Debt: IVAs are typically for individuals who owe thousands of pounds of unsecured debt to multiple creditors. If your debt situation is different, another debt solution may be more suitable.
5. Fees and Costs: It’s essential to consider the fees associated with an IVA, which can be as much as £5,000 and are paid in instalments along with your monthly debt payment.

Additionally, consulting with a financial advisor or debt specialist can provide you with personalised guidance on the best debt solution for your situation.

But are there specific pros and cons of an IVA that you need to be aware of? Of course there is!

The Pros and Cons of an IVA

Just like any other debt solution, IVAs too come with their own set of benefits and drawbacks. But what exactly are they?

Pros of an IVA:

1. Protection from Creditors: Once your IVA is in place, creditors are legally barred from contacting you or sending debt collectors after you.
2. Debt Write-Offs: At the end of the IVA term, any remaining debt is typically written off, leaving you debt-free.
3. Asset Retention: In many cases, you can keep your home and car, with the possibility of only remortgaging part of your home’s equity if necessary.
4. Simplified Payments: You make a single monthly payment towards your debt, which is then distributed among your creditors.

Cons of an IVA:

1. Eligibility Criteria: Not everyone qualifies for an IVA, as it requires having some disposable income and substantial unsecured debts.
2. Credit Rating Impact: An IVA is noted on your credit file for six years, making it difficult to obtain credit during that time.
3. Strict Payment Requirements: You must make all monthly payments, and any missed payments could cause the IVA to fail, leading creditors to pursue their debts.

While an IVA offers benefits such as protection from creditors and debt write-offs, it also comes with eligibility criteria, credit rating implications, and strict payment requirements that should be carefully considered before proceeding.

Apart from the above cons. Did you know there are also a certain set of challenges that you may face when you’re on an IVA? So, what are these challenges?

Challenges You May Have To Face While In an IVA

An Individual Voluntary Arrangement (IVA) is a big decision that can change your life.  While it can help you manage your debt, it also comes with consequences that affect your daily life, money situation, and emotions. 

Here’s how an IVA can impact you and what you should think about before going for it.

1. Spending Restrictions: During the term of the IVA, you will likely face spending restrictions. You will only be permitted to spend money on essential expenses necessary to maintain a reasonable standard of living. This means you may not be able to purchase luxury items or engage in non-essential spending.
2. Budgeting and Financial Discipline: Managing an IVA requires strict budgeting and financial discipline. You’ll need to adhere to the repayment plan outlined in the agreement, which may involve making regular payments to your creditors over an extended period. This can require careful planning and monitoring of your finances.
3. Credit Rating Impact: Entering into an IVA will have a significant impact on your credit rating. It will be recorded on your credit file for a specified period, typically six years from the start date of the IVA. During this time, obtaining credit may be challenging, and any credit you do access may come with higher interest rates.
4. Asset Ownership: Depending on the terms of your IVA, you may be required to sell assets or release equity from your home to contribute towards repaying your debts. This can affect your ownership and control over your possessions, including property and valuable items.
5. Professional and Legal Implications: If you are in certain professions, such as finance or law, entering into an IVA may have professional implications. Some professions have regulations regarding personal finances and insolvency, which could affect your ability to work or maintain professional memberships.
6. Emotional and Psychological Impact: Dealing with financial difficulties and entering into an IVA can be emotionally challenging. It may cause stress, anxiety, and feelings of shame or embarrassment. Seeking support from friends, family, or professional counsellors can help you navigate these emotional challenges.

The Impact of An IVA on Your Credit Rating

An IVA significantly affects your credit score once it’s approved, making it challenging to secure credit. It will also be visible on your credit file. 

However, the IVA record typically remains on your report for six years, including the first 12 months after it concludes. Afterwards, it should no longer appear to creditors, allowing you to work on improving your credit score. 

It’s important to note that if you’re considering an IVA, your credit rating may already be compromised due to unmanageable debts. But if you manage to complete the IVA, then completing the IVA term will help you regain financial stability and rebuild your credit without debt.

But is it possible for someone to get a loan after an IVA? Let’s find out

Loan Opportunities Available During an IVA in the UK

While under an Individual Voluntary Arrangement (IVA) in the UK, obtaining loans can be challenging due to restrictions and the impact on your credit rating. 

However, there are some options available:

1. Small Loans: You can apply for small loans, typically up to £500, without needing additional approval during your IVA. These loans are intended to cover unforeseen expenses without compromising your IVA payments.
2. IVA Early Settlement Loan: Some lenders may offer early settlement loans, allowing you to clear your IVA obligations earlier than planned. However, it’s essential to carefully consider the loan terms and ensure they are manageable before proceeding.
3. Guarantor Loans: Securing a guarantor loan during an IVA may be possible with the support of a creditworthy guarantor and approval from your Insolvency Practitioner (IP). These loans can provide a lifeline for significant unexpected expenses but carry the risk of financial strain for both the borrower and the guarantor if not managed carefully.
4. Car Finance: Car finance options may be available during an IVA if you need a vehicle for essential purposes, such as commuting to work. Approval typically depends on obtaining permission from your IP and demonstrating that the vehicle is necessary for your employment.
5. Credit Cards: While challenging, it’s not entirely impossible to secure a credit card with a limit of up to £500 without seeking permission during your IVA. However, your diminished credit rating may pose challenges, and it’s essential to consider the necessity of additional credit at this stage.

It’s crucial to note that borrowing during an IVA should be approached with caution. Any new credit obtained during this period may come with high interest rates, making repayment more challenging. 

Additionally, seeking permission from your Insolvency Practitioner for larger loans is necessary to avoid jeopardising your arrangement. Always consult with your IP or a financial advisor before taking on any new debt while under an IVA.

So, does this mean that you can get a loan as soon as your IVA ends? Yes, but it’s not wise. Find out why in the next section. 

How Long After an IVA Can I Get a Loan?

While you can technically apply for a loan as soon as your IVA ends, waiting to rebuild your credit can vastly improve your loan terms. Improving your credit score not only reduces the interest you pay but also increases your chances of loan approval. This improvement period is crucial, especially if you’re considering big life investments.

Steps to Improve Your Credit Post-IVA

• Regular Monitoring: Keep an eye on your credit score. Identify any discrepancies and get them corrected.
• Small Credits: Consider small loans or credit cards that you can repay easily to build your creditworthiness.
• Consistent Payments: Ensure you make all your payments on time, every time.

When to Apply for Larger Loans

• Short-Term Wait: For smaller or emergency loans, waiting a year might be enough.
• Long-Term Planning: For significant loans, like a mortgage, waiting a few years while rebuilding credit can lead to much better financial terms.  

Getting A Mortgage After an IVA

Obtaining a mortgage after completing your IVA is indeed challenging but achievable with the right preparation. Your past financial struggles represented by the IVA are not the end of your dreams of homeownership.

Key Strategies to Secure a Mortgage Post-IVA

• Credit Improvement: Focus on improving your credit score. This shows lenders that you are managing your finances well after the IVA.
• Stable Income: Lenders will look for a stable and sufficient income. Make sure you have proof of steady employment.
• Down Payment: Saving for a larger down payment can also improve your mortgage terms. It reduces the risk for lenders and shows your commitment to managing your finances.

Timing Your Mortgage Application

• Assess Your Credit Score: Only consider applying once your credit score has improved significantly.
• Market Conditions: Keep an eye on the housing market. Sometimes, waiting a bit longer for the right market conditions can save you money.

What Comes Next?

Now that you understand when and how to apply for loans and mortgages post-IVA, the path to financial recovery looks clearer.  

IVA Early Settlement Loan: Explained 

An IVA early settlement loan offers you the opportunity to clear your IVA obligations earlier than planned. This can be advantageous, freeing you from the restrictions of the IVA sooner, but it’s crucial to ensure the loan terms are manageable and financially prudent before proceeding. 

Alternatives to an IVA

Yes, there are alternatives to an IVA:

1. Debt Relief Order (DRO): Suitable for individuals with debts but no disposable monthly income. Creditors cannot contact you during a DRO, which typically lasts a year, after which remaining debt may be written off if your financial situation hasn’t improved.
2. Debt Management Plan (DMP): An informal agreement where you negotiate lower repayments with creditors, often by requesting a temporary halt to interest charges. It’s essential to ensure repayment plans are affordable.
3. Debt Consolidation: Combining multiple debts into one monthly payment for easier management. It may also result in lower interest payments.
4. Trust Deed: An alternative to IVAs for residents of Scotland with over £5,000 in debt. Finances are managed by a trustee who distributes payments to creditors over an agreed period, after which the remaining debt may be written off.
5. Bankruptcy: A serious option to consider if debts exceed asset values. Professional advice is crucial to determine if bankruptcy is the best course of action.

Exploring these alternatives with professional guidance can help determine the most suitable solution for individual financial circumstances.

Seek Free Financial Advice 

Sometimes, you may find hardship in dealing with debt issues alone. In those situations, there are a number of debt charity organisations that you could use to get professional debt and financial advice free of charge. Their advisors will inquire deeply about your debt issue and will help you in finding a reliable solution to overcome it.

Below is a list of charity debt organisations where you could get free debt help:

1. StepChange
2. National Debtline
3. Citizens Advice
4. Debt Advice Foundation

Final thoughts

Handling an Individual Voluntary Arrangement (IVA) can be tough for folks grappling with debt. IVAs offer some perks like shielding from creditors, wiping off debt, and simpler payments. But they also have conditions to meet, mess with your credit rating, and demand strict payments.

Credit scores take a hit during an IVA, making it hard to get credit for six years. But finishing the IVA lets you rebuild your credit and get back on track financially.

Getting loans during an IVA is tricky. There are options like 

1. Small loans, 
2. Early settlement loans, 
3. Guarantor loans, 
4. Car finance, 
5. Low-limit credit cards. 

But be careful—they often come with high-interest rates.

Once your IVA is done, you can apply for loans. But your past IVA could mean higher interest rates. It’s smarter to wait, work on your credit, and then go for bigger loans like mortgages.

Considering alternatives to IVAs, like Debt Relief Orders (DROs), Debt Management Plans (DMPs), debt consolidation, Trust Deeds, or even bankruptcy, with expert help, can help you find the right solution.

Lastly, getting free financial advice from trusted debt charity organisations like StepChange, National Debtline, Citizens Advice, or Debt Advice Foundation can give you the support you need when dealing with debt.