Can I Get Car Finance on a Debt Management Plan?

If you are on a debt management plan and considering a new or used car, you may be concerned that your financial situation makes securing a new vehicle impossible, or at least, very difficult. Luckily, bad credit car finance exists to help people in such a situation, meaning that car finance on a debt management plan is possible. In this blog, we explain how it works and what you need to consider before applying.

What is a debt management plan?

A Debt Management Plan, or DMP, is an arrangement between you and your creditors that structures repayments into more affordable instalments.  It can be facilitated by the individual in debt by reaching out to each creditor, or a third party can be approached to work on the debtor’s behalf. This is the most common option, as a specific debt management company will negotiate with the creditors and organise one monthly payment that is then divided among those owed money.

A debt management plan can only be used for non-priority debts, such as store cards and personal loans, and not for mortgage arrears, tax deficits or defaults on utility bills. Priority debts, such as those, should be tackled separately with the creditor.

Those hoping to take advantage of a debt management plan will need to prove they can afford the monthly payments and ensure they are substantial enough to clear the debt within a timeframe agreed with the creditor.

Can I get car finance if I have a debt management plan?

This can be a bit of a grey area. Much depends on the terms of the debt management plan you have. The third party you have chosen will have strict rules regarding your debt, and if you are planning to add to that debt by taking car finance, they are likely to look at it unfavourably. Taking out any additional credit is normally forbidden, as it could compromise your monthly DMP payments.

That being said, if your need for a car is deemed essential, you may be able to reach an agreement to obtain car finance from your DMP provider. Examples considered essential include commuting to work or transporting the children to and from school.

If you have concluded a debt management plan and are now debt-free, you could apply for car finance, but the fact that you have had a DMP will still show on your credit file for up to six years. This could mean lenders are reluctant to offer you finance, as they may see it as a higher risk.

How much will a debt management plan affect my credit score?

A debt management plan can harm your credit score as you’ll be paying back lower amounts each month than you originally agreed. However, having a debt management plan in place is more favourable than missing payments, as you’ll still be showing a willingness to pay. Failing to make payments at all will have a huge effect on your credit score and make any future applications for car finance or any other form of credit extremely difficult.

What circumstances will allow me to get car finance when on a debt management plan?

If you are in a debt management plan or about to join one, you may be concerned about the restrictions it puts on your future finance applications. It will hinder applications for credit cards, store cards and personal loans, because, in many cases, you won’t be allowed to apply for them at all. Regarding car finance, though, things can be a little different. A car can be deemed essential, and where this can be proven, your DMP provider may be more accepting of any requests for car finance that you have.

Examples where you might get car finance when on a debt management plan include:

• If you need a car for transport to and from work, or a car is essential for your job.
• If you live in remote areas where public transport is unavailable or unreliable.
• If you need to take children to, or collect children from, school, or are a carer for someone.
• If you have specific health or mobility issues and cannot afford a car outright.

How can you improve your chances of getting car finance on a debt management plan?

A debt management plan will carefully assess your finances as they are now, and as they may be if you were to take on car finance. It limits your credit options, and due to the damage to your credit score, you may find that certain lenders are not willing to offer a loan.

One of the first things you can do is to be realistic with the choice of car. If you aim for a Ferrari but barely have the budget for a Ford, a car finance company and your debt management company aren’t likely to support your application.

Instead, search for a vehicle that, on finance, will remain affordable whilst you continue to pay your existing debts. Show the lender that you are in a suitable position to afford the car finance and that your current agreement will not be disrupted by it.

It’s also worth noting that even if your debt management plan has ended, a lender may want additional guarantees that you can afford the finance. Due to the negative impact it’s had on your credit score, they may only offer you finance with higher-than-normal interest rates.

At Get Car Finance Here, we source the best bad credit car finance deals to ensure drivers, regardless of circumstance, can still obtain a vehicle when they need it most. With Hire purchase finance as well as PCP car finance available, we tailor your finance to your needs, reducing the risk of escalating debt and making the entire process simple. Apply for car finance today or call us to find out more.