A debt management plan (DMP) lowers what you pay your creditors each month, but it doesn't stop you needing a car for work, the school run or hospital appointments. That leaves a harder question: can you borrow for a car while the plan is still running, and what could the borrowing cost the plan itself?
Car finance on a debt management plan is possible, as long as your budget can carry a new payment and your DMP provider hears about it before you apply. No law stops you applying, because a DMP is an informal arrangement rather than a court order. That informality cuts both ways, though, since your creditors aren't bound by the plan either and can still ask for more or take action if your circumstances change.
Lenders read the same plan as a sign that your budget is already stretched. So most mainstream lenders turn down applicants while a DMP is active, once their checks pick up reduced payments across several accounts at once. Specialist lenders look past those reduced payments to your current income, outgoings and DMP record, but they charge more for taking that risk.
Higher rates make every pound of your budget count, so the realistic starting point is a modest used car on Hire Purchase (HP), a deposit if you can manage one, and a free debt adviser's view of the numbers before any lender sees them.
You should tell your DMP provider before you apply, because most plan agreements make that one of your obligations. StepChange's DMP agreement (clause 2.4), for instance, asks you not to borrow or sign a new credit agreement without discussing it first. Other providers word the clause differently, so check the terms you signed.
Whatever the wording, the conversation comes down to whether the plan still works with a new payment in it. A car you need to keep your job, attend treatment or care for someone passes that test far more easily than an upgrade. Your provider may even suggest a cheaper way to meet the same need.
Skipping the conversation carries real risk, because a new account shows on your credit file. Creditors who spot it may decide you've got money to spare and push for higher payments. Your provider can also cancel a plan that no longer suits your circumstances, which would leave you dealing with every creditor on your own.
A DMP doesn't appear on your credit file as one entry with its own start and end date. Instead, each creditor in the plan reports its own account, usually with a flag showing you're paying a reduced amount. Some of those creditors also record a default, even after agreeing to the plan.
Because each account keeps its own record, there's no single date when "the DMP" drops off your file. Each account's history normally stays for 6 years from when it's paid off or defaulted, while the arrangement flag may go when the plan ends or stay a while longer. That's how a default recorded partway through a long plan can still show years after the plan has ended.
Those entries count for less as they age, though, and each on-time DMP payment adds to a better recent record. Checking your file with the main credit reference agencies, which is free, shows you which entries are still there and how each creditor reports them.
Hire Purchase (HP) is usually the most realistic type of car finance on a DMP, because the car stays the lender's security until your final fixed monthly payment. Personal Contract Purchase (PCP) and leasing leave the lender exposed to what the car is worth at the end, so both are much harder to get while a plan is active.
| Finance type | How it works | On a DMP |
|---|---|---|
| Hire Purchase (HP) | Fixed monthly payments; you own the car after the last one | The likeliest option, mainly through specialist lenders |
| Personal Contract Purchase (PCP) | Lower monthly payments, then an optional 'balloon' payment to keep the car | Harder to get, and the balloon adds a large cost at the end |
| Personal Contract Hire (PCH) | You lease the car and hand it back | Rarely available while a DMP is active |
| Personal loan | Unsecured borrowing used to buy the car | Unlikely, and it's the kind of debt your plan exists to clear |
Whichever row fits you, expect rates well above standard car finance while you're on a DMP. That's why the APR (the yearly cost of borrowing, including fees) and the total amount payable matter more than the monthly figure. A smaller payment spread over a longer term can still cost you more overall.
Specialist lenders mainly check affordability, which means whether your income covers a car payment on top of your DMP, rent, bills and everyday costs. Beyond that, they weigh how reliably you've paid the plan, how long it's been running and how much deposit you can put down.
Here's how that check can look on a typical budget, using illustrative figures rather than a quote.
| Monthly budget | Amount |
|---|---|
| Take-home income | £1,800 |
| DMP payment | £200 |
| Rent and bills | £900 |
| Living costs | £400 |
| Left over | £300 |
Say you choose a £6,000 used car and put down a £600 deposit, leaving £5,400 to borrow. Spread over 4 years at an illustrative 21.9% APR, in line with our representative APR, that comes to about £164 a month.
That payment leaves roughly £136 of your £300, and insurance, fuel, road tax and servicing all have to come out of what's left. So a deal can pass a lender's check and still leave you short in a month with an MOT or a repair. Over the full term, the same payment adds up to about £7,883 for the £5,400 you borrowed.
Because insurance alone can take a large share of that £136, get quotes before you pick the car, not after.
New car finance can push up your DMP payment, because creditors may treat the new account as a sign you can afford to pay them more. They get the chance to act on it at each plan review (at least once a year with StepChange), since the review's outcome goes back to them.
Take the budget above, with a £200 DMP and £164 of car finance. If creditors pressed for £250 on the DMP after a review, you'd be paying £414 a month across both instead of £364. That extra £50 would come out of the £136 already earmarked for insurance and fuel, so build the possibility into your budget before you sign anything.
Car finance you already have stays outside your DMP, because a DMP only covers unsecured debts and HP is secured on the car. That security is why debt advisers treat HP as a priority payment when you need the car, so keep it up to date alongside the plan.
If you do fall behind, the lender must first send a default notice, a formal warning that gives you at least 14 days to put things right. What the lender can do after that depends on how much of the agreement you've paid.
Once you've paid a third of the total amount payable, meaning everything due under the agreement including interest, the car becomes 'protected goods' under the Consumer Credit Act. From then on, the lender needs a court order or your consent to take it back. Below a third, the position in Scotland is less clear, so get free advice before handing a car back there.
The same total decides what voluntary termination costs you. This right on a regulated HP agreement lets you hand the car back and owe no more than half the total amount payable, plus any arrears. If you've paid less than half, you top up the difference, and if you've paid half or more, you may owe nothing further beyond charges for damage past fair wear and tear.
Before it comes to either, talk to your lender as soon as payments look tight, because many will agree a short-term arrangement first.
A car you own outright avoids all of this, since there's no lender who can take it back. Your DMP won't make you sell it, though your provider will count it in your budget.
Free debt advice is the safest first step, because an adviser can check whether a car payment fits your plan before any lender sees an application. StepChange, National Debtline and Citizens Advice all do that check for free, and the MoneyHelper debt advice locator can point you to others. With that much free help on offer, be wary of any firm that charges you for a DMP or for the same advice.
An adviser will also warn you that high-cost borrowing on top of a DMP can make your debt problems worse. That's why it's worth ruling out these alternatives first:
If a car is genuinely essential, work through these steps in order, because each one depends on the last.
That soft search is also how our own eligibility check starts. We're a credit broker, not a lender, so we can see which lenders on our panel may consider your application without any effect on your credit score.
