Can I get car finance on a Debt Management Plan?

Roman Danaev

1 July 2024

Yes, you can still apply for car finance if you’re on a Debt Management Plan (DMP). However, you need permission from your DMP provider first. Typically, a DMP agreement prohibits taking on additional credit. At Carplus, we guide you through the process, helping you understand your options and ensuring you stay within the terms of your debt management plan. Obtaining car finance on a debt management plan requires careful consideration of your financial situation and the requirements of your DMP provider.

What is a Debt Management Plan?

A Debt Management Plan (DMP) is an informal arrangement between you and your creditors to repay outstanding debts. It allows you to follow a more manageable payment plan by making smaller monthly payments. A DMP is designed for non-priority debts like credit card debts, personal loans, and store cards. It does not cover priority debts such as mortgage payments, gas and electricity bills, and income tax arrears. By using a DMP, you can organise your monthly repayments and manage debt more effectively. For more detailed information, explore our full guide on debt management plans.

How does a Debt Management Plan work?

A Debt Management Plan (DMP) is an informal arrangement to help you manage debt. First, consult a service like StepChange to ensure it's right for you. Then, set up a plan with a debt management company authorised by the Financial Conduct Authority (FCA). Once your agreement terms are arranged, you start making regular payments through your DMP. Unlike an Individual Voluntary Arrangement (IVA), a DMP is not legally binding, meaning creditors can still take legal action if necessary. A DMP offers a flexible solution to make your debt more manageable with regular monthly payments.

Do car finance companies accept customers on debt management plans?

There are no legal restrictions preventing you from applying for car finance while on a debt management plan. However, car finance companies will conduct credit checks and assess your income and expenses before approving a loan. They want to ensure you can handle the additional debt without compromising your existing financial commitments. It's crucial to consult with your credit counselling agency before taking on new debt, as it can affect your existing creditors and credit score. While on a DMP, your credit rating is likely impacted, but some lenders specialise in offering car finance to individuals with poor credit scores. Always consider your overall financial situation before applying.

Can you keep your car if you start a Debt Management Plan?

Yes, you can keep your car when starting a Debt Management Plan (DMP). The DMP focuses on managing unsecured debts, so your vehicle is typically not affected. However, you must ensure you can maintain regular payments for any car finance agreements. Keeping up with these payments is crucial to avoid repossession and ensure your car remains with you while you manage other debts.

What are acceptable reasons for car finance while on a DMP?

When on a Debt Management Plan (DMP), you may need access to a vehicle for essential reasons. Justifying these needs to your DMP provider can strengthen your case for obtaining car finance. Here are some acceptable reasons:

  1. Living in a remote area: If you reside in a location without reliable public transport, having a car is crucial for commuting to work and running essential errands. Your DMP provider may support your car finance application under these circumstances.
  2. Work-related travel: If your job requires you to travel long distances, a car becomes essential. Without it, you may struggle to maintain a regular monthly income, affecting your ability to keep up with DMP payments.
  3. Family responsibilities: If you need a vehicle for the school run, dropping children off at nursery, or caring for a family member, these responsibilities can justify your need for a car while on a DMP.
  4. Health or mobility issues: For those with health or mobility problems, a car might be the only practical way to get around. If purchasing a car outright is not feasible, car finance becomes a necessary alternative.

Remember, owning a car involves more than just monthly car finance payments. Consider additional expenses like insurance, road tax, servicing, MOTs, and breakdown cover. Ensure you can manage these costs within your disposable monthly income to avoid further financial strain. Always consult with your DMP provider and carefully assess your financial situation and personal circumstances before applying for car finance.

How does a Debt Management Plan affect your credit score?

A Debt Management Plan (DMP) can significantly impact your credit score. When you enter a DMP, it is recorded on your credit file, indicating to lenders that you are actively managing your debt. This notation signals financial difficulties, making it harder to secure new lines of credit as lenders may view you as a higher risk. However, sticking to your DMP and making regular, on-time payments can gradually improve your credit score over time. Remember, a DMP will remain on your credit file for six years from the setup date, even if the debt isn't fully repaid. This transparency helps you manage debt responsibly and rebuild your financial health.

How can you buy a car during a debt management plan?

Buying a car while under a Debt Management Plan (DMP) is possible with the right approach. At Carplus, we offer bad credit car finance options tailored for those with poor credit scores. Start by using our online car finance calculator to determine your budget. Our application process is straightforward. Simply apply online or contact our friendly team. Once accepted, you can browse a range of vehicles that fit your budget. We'll help you set up a car finance agreement and a manageable payment plan. With a finance deal from Carplus, driving away in your new car is a hassle-free experience, even with a DMP.

Are you eligible for car financing?

If you're under a debt management plan, obtaining car finance can be challenging, but not impossible. Specialist lenders offer bad credit car finance, catering to individuals with lower credit scores. Understanding your car payments options is crucial:

  • Bad credit car finance: Specialist lenders can help, even with poor credit.
  • Unsecured loans: Can be added to your DMP.
  • Secured loans and hire purchase agreements: Cannot be added to your DMP.

Remember, hire purchase agreements cannot be included in a DMP because the car ownership reverts to the dealership if you miss payments. Your DMP aims to help you make regular, manageable repayments based on your monthly income. Always assess your financial situation and consult with your DMP provider before applying for new car finance. This ensures you stay within the terms of your plan and manage debt effectively.