Buy a Car during a Debt Management Plan
A Debt Management Plan can last for a number of years. During this time you may need to buy a car. Perhaps you did not have a car before but now your circumstances have changed and you need one. Alternatively your old vehicle may have broken down but is just beyond repair. There is nothing to stop you buying a car during the Plan if you want. However the issue you will face is how you are going to pay for it when you are already living on a restricted budget.
Can you borrow to buy a Car during a Debt Management Plan?
It is important to realise that your credit rating will be poor if you are in a Debt Management plan. It is therefore very unlikely that you will be able to take an unsecured loan to buy a car. You are certainly not likely to be able to do so from a normal high street lender.
There are specialist car finance companies who might be willing to lend to you even though you have a poor credit rating. However you need to expect that the associated monthly payment will be relatively high. It might also be possible to borrow from family or friends. If you are able to do this then ideally you should agree with them that you will only start to repay them after your Plan is finished.
**Update** If you are a home owner it might be possible to release equity from your property which you could use to buy a car. It is possible to re-mortgage during a Debt Management Plan as long as you have been paying on time for 12 months and have had no further default notices issued against you.
How to pay for car finance if you are in a Debt Management Plan
If you do find a way to borrow to buy a car during your Plan you must make sure you will be in a position to repay the new debt you take on. If you are taking on a new car finance agreement you will have to add the new payment to your living expenses budget. If your total living expenses are now higher as a result it will mean that the amount you can continue to pay into your Plan will fall.
Because the Plan is flexible it is possible to reduce the payments to accommodate your new car finance. However you need to understand the implications of doing this. Firstly if you pay less each month it will take you longer to repay your debts. Secondly you will have to agree new lower payments with each of your creditors. They may start to add interest and charges to your accounts again until the new payments are agreed.
DM4U Tip: If you are able to release equity from your property by re-mortgaging you must remember that your mortgage payments will increase. Again this means the amount you can then pay into your Plan will fall. For this reason you should also consider releasing enough money to settle your Debt Management Plan in full. If you do this you will not have any further Plan payments to worry about.
Can you save to buy a Car during a Debt Management Plan?
If borrowing to buy a car is not an option for you the next thing to consider is saving the money you need. You are allowed to save while you are in a Debt Management Plan. In fact you should already be saving money towards things like car repairs and emergencies every month.
However the issue with saving money is that it can take a long time. If you need to buy a car urgently as yours has broken down and cannot be repaired you might not have time to save. In this situation one option open to you is to stop your Plan payments altogether. Instead you put the money towards the new car.
DM4U Tip: If you do not keep up your payments your creditors are likely to start their collection actions against you again. One way you might be able to reduce this is by actually approaching the creditors up front and asking them for a payment holiday from your Plan. You need to explain that without a car your job and therefore your ability to continue paying anything at all will be at risk. There is no guarantee that your creditors will agree to giving you a payment holiday but it is certainly worth a try.
What if I buy a Car but the running costs are different?
If you buy a car during a Debt Management Plan you will need to consider whether or not the running costs including the fuel, insurance and maintenance are same or different as your old vehicle. If you believe that the running costs will change then you need make a provision for this in your living expenses budget. This is particularly important if you did not own a vehicle previously.
If the costs increase the amount you can pay into your Plan will reduce. You will then need to negotiate lower payments with your creditors. If the costs of running your car have reduced this will mean that the amount you have available to pay into your Plan will increase.
If the amount you can pay into your Plan increases you can of course increase the payments you make accordingly. However you could also consider keeping your payments the same. You could then save the extra cash and use this to offer early settlements to your creditors once your savings are sufficient.
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