Can I get car finance while on a debt management plan?

Can I get car finance while on a debt management plan? 

Car finance schemes work just like loans; you borrow money from a lender to cover initial costs and pay it back - plus interest - in instalments over a set period. This provides an avenue to vehicle ownership even if you cannot afford to cover the full cost upfront. 

As car finance involves borrowing money, being on a debt management plan (DMP) can impact your options and eligibility. Committing to a finance agreement would also increase how much money you owe, contributing to higher monthly repayments.

In this guide, we shed light on exactly how being on a debt management plan affects your options for car finance and the key things to consider so you can make an informed decision. We're specialists in car finance for bad credit and have over two decades of experience to share.

What types of car finance are available? 

There are three types of car finance available in the UK: 

• Hire Purchase (HP): you make fixed monthly or weekly payments until you've paid the car's full value and it becomes yours automatically. 
• Personal Contract Purchase (PCP): you pay lower monthly amounts (compared to HP) but will face a large balloon payment if you want to take ownership at the end of the agreement. 
• Personal Contract Hire (PCH): this is a long-term rental where you make fixed monthly payments for a set period before simply handing the vehicle back with no option to buy. 

The details of the agreements, such as contract length and interest rate, vary from lender to lender, with some companies like us offering flexible plans so you can make your monthly repayments as affordable as possible. 

How does a debt management plan impact car finance? 

Additional credit 💳

When you have a debt management plan in place, you may have restrictions on taking out additional credit. You'll need to check with your plan manager whether this applies to you and, if so, if it can be waived before you commit to a car finance agreement.

Be aware that car finance can count as a priority debt, especially if the vehicle is your only means of transport. You cannot usually include priority debts in debt management plans, so you would have to manage your car finance repayments separately. 

Lender checks ✅

Car finance lenders run checks as part of the approval process for applications. As part of this, they'll review your credit score and report. As some creditors request a note to be added to your file to say that you have a DMP, your debt management plan may show up on your file. 

A debt management plan signals that you've previously struggled with repayments, which could make car finance providers less likely to lend to you. However, it also demonstrates that you're taking steps to get on top of your debt, which is positive, and evidence that you're keeping up with DMP repayments can help you be considered favourably.

Your credit score 📈

If you're keen to improve your rating, it's worth bearing in mind that applying for any kind of credit agreement, including car finance, risks negatively impacting your credit score. Limiting the number of applications you make and choosing options where a 'soft' rather than a 'hard' credit check applies can help keep negative ramifications to a minimum.

Having a poor credit score can directly impact the car finance agreements available to you. Lenders might decide to raise interest rates or set a lower borrowing limit to protect their investment.

Staying on top of car finance repayments and completing the contract will positively impact your payment history, which makes up a significant part of your credit score. If it's an affordable option, it could be beneficial in the long run.

What makes you eligible for car finance on a debt management plan? 

There are several reasons that a debt management plan provider might agree to you applying for car finance. Commonly accepted reasons include: 

• You live in a remote area with limited access to public transport 
• You need to travel long distances for work 
• You have to provide for a young family 
• You're a carer 
• You have health or mobility problems that mean access to a car is essential 

What are the criteria for getting car finance? 

If your debt management plan doesn't prevent you from taking on additional credit, you can apply for car finance if:

• You're aged 18 or over 
• You're a UK resident 
• The vehicle meets maximum mileage limits (120,000 for petrol cars and 160,000 for diesel vehicles) 

At First Response Finance, we have flexible criteria so you can tailor the loan to your requirements, including: 

• Short to long terms, from 18 to 61 months 
• Broad loan amounts from £2,000 to £15,000 
• No-deposit agreements 
• Consideration of provisional driving licences

Things to consider before getting car finance on a DMP

1. Debt management 

Arranging a car finance agreement means increasing how much money you owe overall. You should be sure that the agreement terms are affordable alongside your monthly DMP repayments and other essential costs before you take it on, otherwise you risk defaulting on payments and getting into more debt.

Remember that car finance cannot usually be integrated into a debt management plan as it's often seen as a priority debt, so payments will need to be organised separately. 

2. Ownership costs 

The cost of a car goes beyond monthly finance payments. As the registered owner and keeper of the vehicle, you'll be responsible for arranging annual insurance cover, tax and MOT tests. These are all legal requirements for running a vehicle in the UK. You should also consider wider ownership costs such as regular servicing and fuel.

3. Credit rating 

If your goal is improving your credit rating and you don't need a vehicle of your own, the risks involved with car finance might outweigh the benefits. Application refusals and getting behind on your repayments could worsen your credit score. Following your debt management plan to the end will improve your score and give you access to better car finance options in future. 

Can debt collectors take a car if it's on finance? 

Cars on finance like Hire Purchase agreements legally belong to the lender, so they cannot be seized by bailiffs managing debt collection unless the lender applies for a warrant of control. Even then, if the vehicle can be proved essential for work, it cannot be removed. First Response Finance's flexible criteria lets you tailor contract terms to your needs to help ensure an affordable agreement, minimising any risk of repossession.

Tips for getting your car finance approved 

If you've been given the go-ahead to apply for car finance by your debt management plan provider, follow these tips to improve your chances of getting approved for your desired loan: 

• Boost your credit score: where time isn't of the essence, work on improving your credit score before submitting your application. Straightforward steps like registering to vote and ensuring your details are correct with your creditors can boost your score.
• Know what you can afford: use a car finance calculator before applying to get an idea of the required monthly repayments and ensure these are affordable alongside your DMP. 
• Give accurate details: when filling out your application, ensure your financial details are up to date. 
• Apply with another person: with joint car finance, the financial history of both parties is considered in the lender's decision, so applying with someone with a strong credit rating could help you get approved.