While an Individual Voluntary Arrangement (IVA) can be a prudent way of taking care of your debts, it can affect your life in ways you didn’t anticipate.
Many people educate themselves on what effects an IVA can have when it’s in place but very few think about how an IVA can affect them after it has finished.
In this post, I’ll be looking at how an IVA can affect your ability to obtain a loan even after it has finished and what you can do to secure a loan easily.
My IVA has Finished. Why do I Still Need to be Worried About Not Being Able to Get a Loan?
An IVA is an extremely flexible debt solution which can do a great job of writing off your debt.
That being said, it does come with its set of disadvantages which you need to be aware of.
One of these disadvantages is the fact that an IVA stays in your credit file for six years. Please note that the IVA stays in your credit file for six years even if your IVA ends in five years or earlier than that.
So, this means that for six years, you’re going to have a lot of trouble securing a loan due to your poor credit score.
You can’t really obtain a loan of more than £500 at all when your IVA is in place without the permission of your insolvency practitioner (IP).
Once your IVA has finished, you don’t need to seek permission for your IP but you’ll find it very hard to get approved for a loan due to the mention of the IVA in your credit file.
It’s likely that you won’t be able to get your application approved if you go to traditional lenders.
Thus, you’re going to have to get credit from specialised lenders that will be responsive to your loan application even if you have a poor credit score.
How Do Specialised Lenders Work?
Specialised lenders work in a variety of different ways.
Each lender will have a different set of eligibility criteria and conditions that you’ll have to fulfil in order to qualify for their loans.
For example, bad credit lenders are lenders that won’t give much weightage to the fact that you have a poor credit score. Instead, they will look at your current financial circumstances and your ability to pay back the loan adequately.
However, you have to keep in mind that bad credit loans often come with strings attached. For example, bad credit lenders often offer loan amounts that are much lower compared to traditional lenders.
Furthermore, it’s also likely that you will not get a competitive interest rate when you’re opting for a loan with a bad credit rating.
Thus, it’s highly likely that you’ll end up paying a lot more money than what the original amount you borrowed was.
Some lenders may ask you to produce a guarantor. A guarantor is a person who will agree to make your monthly repayments for you in the case that you are ever unable to. A guarantor can be anyone whom you trust such as a parent, a relative or a close friend. Keep in mind that your guarantor needs to have a good credit score though.
Guarantor loans often allow you to secure a much larger amount of money compared to bad credit loans that don’t need guarantors. This is because a guarantor reduces the potential risk for the lender.
Similarly, secured bad credit loans (such as a mortgage loan) typically have lower interest rates and higher amounts of money that you can borrow compared to unsecured bad credit loans. Again, this is because when it comes to a secured loan, you put up a valuable asset of yous as “collateral”.
In the event that you are unable to pay back your debt, the asset is seized by your lender and sold off in order to make up for your debt. Unsecured loans don’t have any asset secured against them so the lender reduces their risk by either limiting the amount of money you can borrow and/or by charging a higher interest rate.
When you’re looking for a bad credit lender, it’s highly important that you make sure that whatever lender you’re dealing with is authorised and regulated by the Financial Conduct Authority (FCA).
In cases such as these, I highly recommend potential borrowers to wait.
It’s understandable if you need a loan for an emergency purchase. Of course, if your loan can’t wait and you have a bad credit rating, then opting for a bad credit lender definitely is the way to go.
However, if whatever purchase you need the loan for can wait, then I highly recommend that you wait some months before opting to borrow money.
So, what will waiting for a few months do for you? Well…
Improving Your Credit Rating
If your loan cannot wait, then your best option is definitely to opt for a bad credit lender.
However, on the other hand, if you can afford to wait, then this is definitely the best option for you.
This is because if you wait 12 months, then the mention of your IVA will be removed from your credit file and thus, you’ll have a much easier time securing traditional loans.
An IVA has a tremendously negative effect on your credit score when it’s mentioned in your credit file. Thus, it’s definitely a good idea to only look for loans once the IVA has been removed from your credit report.
So, if your IVA ends in five years and your remaining debt is written off, I recommend waiting a further 12 months before you apply for any type of loan.
Now, during these 12 months, you can also perform other actions that can help you rebuild and improve your credit score.
In this way, by the time these 12 months pass and your IVA is removed from your credit file, your credit score will be in tip-top shape.
So what are some things you can do to improve your credit score?
Apply for a Credit-Builder Credit Card
As the name suggests, a credit-builder credit card is pretty much aimed at individuals that are looking to rebuild their credit ratings.
You can use this card to make your payments. It’s a good idea to use the card only for necessary living purchases such as grocery, food and fuel.
Be sure to only spend it for things you can afford and make sure to pay off the outstanding balance in full each month.
Get Mistakes Fixed
Get a copy of your credit report and go over it thoroughly to ensure there aren’t any mistakes.
Mistakes could be mentions of financial dealings that you have already settled or duplicate entries.
When six years have passed since the date your IVA was registered, you should get a copy of your credit report and check whether the IVA has been removed from it or not.
If you still spot your IVA in your credit report even though it has been six years since the date on which it was registered, then you should lodge a dispute.
If you spot any other type of discrepancy as well, you should take action to get it fixed straight away.
Never Apply for Too Much Credit at Once
When you open a new credit card or opt to apply for any type of credit, a credit check is performed on you by your potential creditor.
This credit check is logged within your credit report. Too many credit checks such as these inside your credit report can have an extremely negative effect on your credit rating.
Thus, be sure to never apply to too many avenues of credit at the same time.
Getting approved for a loan after an IVA is much tougher than it sounds.
It’s something that most individuals don’t think about when they’re opting for an IVA.
In conclusion, I’ll just say that if it isn’t time-sensitive, you should wait until the IVA has been removed from your credit file. If it is time-sensitive, then you should compare different bad credit lenders and opt for the one that offers the loan amount you need with an affordable interest rate.