DROs & DMPs: do they affect your ability to get car finance?
If you’re in a Debt Management Plan (DMP) or have a Debt Relief Order (DRO), you may be wondering whether you can still get car finance.
It’s understandable that you want to find out more before applying, so let’s take a look at how they work and if these two different types of debt affect your ability to get car finance.
What is a Debt Relief Order (DRO)?
A DRO is a Debt Relief Order and one way to help people who cannot afford to repay their debts. When you have a DRO in place, it prevents your creditors from chasing you for the debt, and after 12 months, if your situation hasn’t changed, your debts will be written off.
There are only specific circumstances in which you can qualify for a DRO. The main eligibility criteria are that your debt must be low – usually under £20,000 – and you cannot have any assets over £1,000 or own a home. You then qualify if you have less than £50 left each month after paying your household bills and expenses.
The DRO is authorised by an official receiver whose role it is to decide whether you qualify. It would help if you also had an authorised debt adviser to guide you through the process.
How does a Debt Relief Order affect my credit score?
As you can imagine, a Debt Relief Order does hurt your credit score, and it will show up on your credit report. It also stays on your file for up to six years from the date the order was put in place.
Having a DRO can impact your chances of getting credit from some lenders, as it shows a history of struggling to keep up with repayments.
However, from a lender’s point of view, the more time that has passed since the DRO, the better, providing you’ve kept on top of your payments and managed your credit well since.
Can I get car finance with a Debt Relief Order?
If you’re looking for car finance and you’re in a DRO, there are some things you need to be aware of. The first is at what stage are you in your DRO? If you’re within the first 12 months, some restrictions may stop you from getting car finance.
During the first year of your DRO, you’re not allowed to take out credit worth more than £500 without first gaining permission from the receiver. You also need to disclose the DRO to the lender.
On top of this, if your situation changes within those first 12 months, it has to be disclosed and could affect the DRO.
As you only have a disposable monthly income of £50 or less, it would limit your ability to meet car finance payments.
Once the 12 months of the DRO have passed, the order will end. However, it stays on your credit file and will impact the lender’s decision to approve your application for car finance.
If you’re eligible, you may have to pay a larger deposit and may only qualify for higher interest deals.
At Hippo Motor Finance, we understand that sometimes life throws you a curveball, affecting your finances. A car can be essential for work or family, so we’re happy to discuss your circumstances with you.
With a panel of specialist lenders who deal with customers with poor financial history, we may be able to help. We will only ever use a soft search when seeing if you’re eligible so that it won’t impact your credit score.
What is a Debt Management Plan (DMP)?
A Debt Management Plan (DMP) is an agreement you make with your creditors to pay back the money you owe them in an affordable way – often with lower payments over a longer period of time.
Although you can arrange a DMP yourself, it’s often easier to use a DMP provider who can deal with all your creditors for you and organise your payments. This way, you can give your provider one monthly lump sum, which they will split between your creditors until all the debt is paid off.
It’s not a legally binding agreement, so you can cancel a DMP at any time.
How does a Debt Management Plan affect my credit score?
A DMP isn’t noted on your credit report. However, your creditors may add a note to your account entries to show that you are on a repayment plan.
If you’ve missed any payments or defaulted on any of the debts in the run-up to setting up your DMP, these will have also impacted your score and be visible to lenders. Any defaults will stay on your file for up to six years.
The good news is that a DMP does show you’re willing to repay the debt, so it will be more favourable to lenders than some other debt solutions.
Can I get car finance on a Debt Management Plan?
It depends on the terms of your DMP, as some may state you can’t borrow more money until the plan is finished.
However, car finance is often looked at as essential, particularly when you need the car for work, so it’s worth checking with your provider.
It’s worth noting, though, your debt will have probably affected your credit score, meaning if you do qualify for car finance, you may be limited by high deposit amounts and high-interest rates.
If you’re looking for car finance while in a DMP, you should always make sure it’s affordable for you to prevent struggling further financially.
How Hippo Motor Finance can help if you’re in a DMP or have a DRO
We recognise that sometimes your financial circumstances change, but your need to access a car can be still just as important.
We know that those in a DMP or DRO are taking steps to tackle their financial problems, so ensure that we only ever carry out a soft credit check to determine whether you could be eligible without impacting your credit score.
Our specialist panel of lenders is experienced in looking at those with poor credit history. We’ll always try and help customers who have difficulty accessing car finance elsewhere or who need advice.
To find out if you’re eligible for car finance without it affecting your credit rating, try our free soft credit search here.