Car and a Debt Management Plan
You can usually keep your car if you start a Debt Management Plan. Your creditors will not normally be interested in it.
Jump to article contents:
- Can you keep your car if you start a DMP?
- How do you pay to run it?
- What if your vehicle is on finance?
- Can you buy a new car during your Plan?
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Can you Keep your Car if you Start a Debt Management Plan?
Creditors are generally not concerned about your car if you start a Debt management Plan (DMP). The value of your vehicle is not normally taken into consideration when agreeing your reduced payments.
This is because your creditors are not agreeing to write off any debt for you during the Plan. Your creditors know they will still get their money whatever the value of your vehicle.
That said if your car is extremely valuable you might want to think about selling it and buying a cheaper one. You could then use any cash left over to settle some of your debts early.
Generally speaking you will not be under any obligation to sell your car or get a cheaper one if you start a Debt Management Plan.
How do you pay for Running a Car during a Debt Management Plan?
When you set up a Debt Management Plan you first calculate your income and living expenses. The amount you pay each month is based on your disposable income (total income less expenses).
For this reason it is very important to include all the costs of running your car in your living expenses budget. Your should consider each of the following amounts:
– Fuel & Parking
– Road Tax
– MOT and maintenance costs
– Breakdown cover
Some vehicle expenses such as MOT and maintenance are not paid monthly. You should estimate the amount pay each year on these and then divide the total by 12 to get an average monthly amount.
What if your Vehicle is on Finance?
Car finance cannot be included in a Debt Management Plan. This is because the debt is secured against your vehicle. If you do not maintain the payments the finance company could repossess it.
However starting a Plan should make it easier for you to pay the finance each month. This is because you can include the amount you need to cover your payments in your living expenses budget.
The finance company is unlikely to find out about your Plan. As such there is no risk that they will become concerned and try to repossess your vehicle. The only time that would happen is if you do not maintain the agreed payments.
If you are paying for your car on HP when the agreement comes to an end you could increase your Plan payments so your debts are paid faster.
Can you Buy a New Car during a Debt Management Plan?
It is possible that you may need to get a new car during your Debt Management Plan. Your current vehicle might have to be scrapped or you now need a different vehicle.
Generally speaking the problem is how to fund the purchase. There is nothing to stop you borrowing money from friends or family. However your poor credit rating will prevent you from borrowing from a bank.
You might be able to find a specialist car finance companies who will lend to you. However the interest charged (and therefore the monthly payments) will be high.
Before you take a new car finance agreement make sure you can afford the monthly installments as well as your Plan payment.
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