A Car on Finance, Question by Question
How HP and PCP are treated, and what happens when the deal ends.
What happens to my car if it's on finance?
You can usually keep it by keeping up the payments. With hire purchase or PCP, the finance company legally owns the car until the agreement ends, so it is not an asset you lose in the IVA. The finance itself is kept outside the arrangement, and as long as you continue the monthly payments, the car stays with you throughout.
Is the car finance included in my IVA?
No, not if you want to keep the car. Because the lender owns the vehicle, HP and PCP agreements are treated separately from the unsecured debts in your IVA. You keep paying the finance as normal. The flip side is that you cannot write this debt off while keeping the car, the two go together: keep paying, keep driving.
Are the payments treated as essential?
Usually, yes, within reason. If you need the car, the finance payment is allowed for as a priority cost in your budget, alongside running costs like fuel and insurance. The key word is reasonable: a sensible monthly payment for a car you rely on is normally accepted as part of the affordable budget your IVA is built around.
What if my payments are very high?
Then creditors may push back. Some creditors take the view that a large car finance payment leaves too little for them, and a few apply a rough monthly ceiling, voting against an IVA where the cost looks excessive. If your payment is high, your provider can advise whether it may be a problem, and whether a cheaper vehicle would make your IVA easier to approve.
What happens when an HP agreement ends?
You own the car, and your IVA payment usually rises. Once the final HP payment is made, the car is yours. But the money you were paying to the finance company does not become spare, it is normally redirected into your IVA, since your disposable income has gone up. So you should not expect to feel better off when the finance ends; the saving goes to your creditors.
What if the car is worth a lot when HP ends?
You may be asked to downsize. When an HP deal finishes and you own a car that is worth a significant amount, your supervisor might ask you to sell it, buy a cheaper one and pay the difference into the IVA. This is the same value test that applies to any car owned outright. A modest car is unlikely to trigger it; a valuable one might.
What happens with PCP at the end?
Your options are limited by your credit. At the end of a PCP, you would normally pay a large balloon payment to keep the car, refinance it, or hand it back. In an IVA, refinancing the balloon is generally not possible because your credit is impaired. So the realistic choices are usually to hand the car back, or move to a cheaper agreement from a specialist lender.
Could I claim for mis-sold car finance?
Possibly, but tell your supervisor first. Many older HP and PCP deals are covered by the regulator's car finance redress scheme, and being in an IVA does not stop you claiming. However, any compensation may count as a windfall belonging to your IVA, so you must tell both your lender and your supervisor, and follow their instructions, rather than simply keeping a payout.
Should I get advice?
Yes, car finance in an IVA has real complications. A free, impartial adviser can explain how your particular agreement would be treated, what happens when it ends, and whether keeping the car is the best choice. Getting this clear before you start avoids unwelcome surprises, especially around rising payments and PCP balloon payments. It costs nothing to ask.
