What You Need to know before you apply for Loans for People in an IVA
Loans for people in an IVA can be difficult to obtain because an Individual Voluntary Arrangement (IVA) is a formal, legally binding debt solution designed to help people repay what they can afford. An IVA also places restrictions on taking on additional credit. For anyone considering borrowing during an IVA, understanding the rules before making an application is essential.
The standard IVA terms state that you must obtain written approval from your IVA supervisor before taking more than £500 of credit during the arrangement, subject to specific exceptions. Taking credit above this amount without permission can constitute a breach of the IVA.
This means that finding a lender willing to provide a loan is only one part of the issue. The proposed borrowing must also comply with the terms of the IVA and be affordable within your existing budget.
Can You Get Loans for People in an IVA?
It may be possible to borrow money while in an IVA, but most people will find that conventional loans are difficult to obtain. An IVA indicates that you have previously experienced serious financial difficulties, and lenders generally consider your existing financial commitments and credit history when assessing an application.
An IVA can appear on your credit file for six years from the date it is approved, while defaults associated with debts can also affect your ability to obtain mainstream credit.
More importantly, the terms of an IVA generally restrict new borrowing. Under the current IVA Protocol, credit above £500 requires prior written approval from the supervisor.
Consequently, applying for loans from multiple lenders without first speaking to the IVA supervisor may create unnecessary applications on your credit file and, more importantly, could put the arrangement at risk if borrowing is undertaken without the required permission.
Why Is Borrowing Difficult During an IVA?
An IVA is based on an agreed assessment of your income, expenditure and disposable income. Your monthly contribution is calculated around what you can reasonably afford after essential household expenses.
Taking on a new loan can therefore change the financial circumstances on which the IVA was agreed.
The purpose of an IVA is to provide a structured way of dealing with existing unsecured debts. Common debts that can be included include credit cards, personal loans, overdrafts, catalogues and payday loans.
Adding another monthly credit commitment can make it harder to maintain the agreed payment and household budget. For this reason, the insolvency practitioner supervising the arrangement needs to understand why additional borrowing is required and whether it is genuinely affordable.
Can I Borrow £500 While in an IVA?
The £500 threshold should not be interpreted as an automatic entitlement to borrow £500.
The IVA Protocol states that credit greater than £500 requires prior written approval from the supervisor. However, your individual IVA agreement may contain additional provisions, so we should always check the specific terms of the arrangement before taking credit.
StepChange also advises people with an IVA to speak to their insolvency practitioner before borrowing and explains that permission is required for borrowing above £500.
This can include different forms of borrowing, such as:
- Personal loans
- Credit cards
- Overdrafts
- Payday loans
- Borrowing from family or friends
- Certain employer salary-deduction arrangements
The important point is that borrowing should not be treated separately from the IVA. The supervisor needs to consider the effect of the new credit on the overall arrangement.
What If You Need a Loan for an Emergency?
There may be situations where borrowing appears to be the only practical solution. Examples could include an essential vehicle repair, urgent household repairs or another unexpected expense.
Before applying for a loan, we should contact the IVA supervisor or insolvency practitioner and explain the situation.
This is particularly important because an IVA budget should normally contain provision for reasonable household and unexpected expenses. If the existing budget is no longer sufficient, the supervisor may be able to discuss available options.
StepChange specifically recommends speaking to the IVA provider when an unexpected expense arises rather than automatically using additional credit.
Depending on the circumstances, the supervisor may review the budget or consider whether the IVA needs to be adjusted. The correct solution will depend on the terms of the individual arrangement and the reason for the financial difficulty.
Loans for People in an IVA and Bad Credit
People searching for loans for people in an IVA will often encounter lenders advertising products for borrowers with bad credit. However, a bad-credit loan and an IVA loan are not necessarily the same thing.
A lender may advertise that it considers applicants with poor credit histories, but this does not mean that someone currently subject to an IVA will automatically qualify.
We should also distinguish between eligibility and affordability. Even if a lender is prepared to consider an applicant with an IVA, the proposed repayments still need to be affordable and permitted under the IVA.
High-cost borrowing can make an already difficult financial situation worse. A loan with a high interest rate may result in substantially more being repaid than the original amount borrowed.
For that reason, we should never assume that a lender advertising “bad credit loans” is necessarily an appropriate option for someone in an IVA.
Should You Apply for Several Loans During an IVA?
Generally, making multiple applications for credit is not a sensible first step.
Before searching for loans, we should establish:
- Why the borrowing is needed.
- How much is actually required.
- Whether the expense is essential.
- Whether the IVA supervisor permits the borrowing.
- Whether the repayments are affordable.
- Whether there are alternatives to borrowing.
If the expense is caused by a change in circumstances, contacting the IVA supervisor may be more appropriate than approaching several lenders.
The Financial Conduct Authority has also warned consumers about unsuitable debt advice and misleading promotions surrounding debt products, emphasising the importance of obtaining appropriate advice where someone is experiencing financial difficulty.
What Happens If You Borrow Without Permission?
Borrowing more than the permitted amount without the required written approval can constitute a breach of the IVA.
The current IVA Protocol states that obtaining more than £500 of credit without the supervisor’s consent constitutes a breach.
This is why we should never rely on a lender approving an application as evidence that the borrowing is allowed.
The lender’s decision and the IVA supervisor’s permission are separate matters. A loan may be legally offered by a lender while still being prohibited under the terms of an individual’s IVA.
If you have already borrowed money without permission, the safest course is to tell the IVA supervisor promptly rather than ignoring the situation.
Alternatives to Loans During an IVA
When an unexpected financial problem arises, borrowing is not always the only option.
We should first consider whether the existing IVA budget can accommodate the expense or whether the supervisor can review the arrangement. StepChange advises people struggling with their IVA payments or unexpected costs to contact their provider rather than automatically taking additional credit.
Other possibilities may include reducing non-essential expenditure, negotiating payment arrangements for certain bills, checking whether support is available for essential costs, or discussing a temporary change to IVA payments where circumstances justify it.
The appropriate option depends on the individual circumstances and the specific terms of the IVA.
Can You Get a Loan After an IVA?
Borrowing can become easier after an IVA has been completed, but completing the arrangement does not instantly restore a strong credit profile.
An IVA can remain on a credit file for six years from the date it was approved. Once it has been completed, however, the IVA should be recorded as completed, and borrowers can begin taking steps to rebuild their credit history.
We should avoid assuming that the first loan offer after an IVA is automatically good value. Comparing interest rates, total repayment amounts and affordability remains important.
Building a positive financial record gradually is generally more sustainable than immediately taking on expensive credit.
Final Thoughts on Loans for People in an IVA
Loans for people in an IVA are possible only in limited circumstances and should be approached with considerable care. An IVA is designed to help manage existing debt, so additional borrowing can create complications if it is not properly authorised and affordable.
The key rule is straightforward: check with the IVA supervisor before taking new credit, particularly where the proposed borrowing exceeds £500. Current IVA terms require written approval for credit above that threshold, and unauthorised borrowing can breach the arrangement.
Rather than applying to multiple lenders, we should first establish whether borrowing is genuinely necessary, whether the expense can be dealt with another way, and whether the proposed repayments fit within the IVA budget.
For anyone currently struggling financially during an IVA, contacting the insolvency practitioner or supervisor should be the first step. An IVA is intended to provide a structured route through financial difficulty, and changes in circumstances should be addressed within that arrangement rather than hidden through additional borrowing.
