If you're in a Debt Relief Order (DRO), thinking about applying for one or have just come out of one, you're probably wondering where that leaves you and your car. Lots of people rely on one for work, school runs or hospital appointments. What you can do depends on whether the DRO is still running and whether you already have a car on finance.
Having a DRO doesn't automatically mean giving up driving, and free, expert help is available to work out your options.
Car finance with a DRO is possible, but only rarely while the order is running and far more often once the 12-month DRO period has ended. A DRO doesn't ban you from borrowing. But you must tell any lender you're in a DRO before you get credit of £500 or more, and not telling them is a criminal offence.
Learn more on - https://www.gov.uk/guidance/once-you-have-a-debt-relief-order-dro
Once a lender knows about an active DRO, it's likely to turn the application down, because your file shows you couldn't keep up with your existing debts. There's a practical problem, too. To qualify for a DRO you'll have less than £75 a month left after essential bills, which leaves very little room for a car finance payment.
Taking out car finance shortly before you apply for a DRO can cause problems as well. The Official Receiver may look into recent borrowing, and that can lead to longer restrictions or the DRO being cancelled. That's why it usually makes sense to speak to your debt adviser before any new credit, and to wait until the DRO has ended before applying.
A Debt Relief Order (DRO) is a form of insolvency for people with low debts, little spare income and few assets, which freezes your qualifying debts for 12 months and then writes them off. This means you make no payments towards the debts listed in it, and those creditors can't chase you during that year.
You can't apply on your own. An approved debt adviser (known as an approved intermediary) checks that you qualify and sends the application to the Official Receiver, who decides whether to make the order. Applying has been free in England and Wales since 6 April 2024.
Some debts can't go into a DRO and still have to be paid, such as student loans, court fines and child maintenance.
You can usually get a DRO if:
The debt limit and the car allowance were both last raised on 28 June 2024.
The DRO period usually lasts 12 months, though the Official Receiver can ask for it to be extended. During that time you must report changes such as a pay rise, a lump sum or an inheritance. If you no longer qualify, the Official Receiver can cancel the DRO and your creditors can chase you again. When the order runs its course, the qualifying debts listed in it are written off.
Northern Ireland runs its own DRO scheme, with the same £50,000 debt limit. Its car allowance is also £4,000.
Scotland doesn't have DROs. The nearest equivalent is the Minimal Asset Process (MAP), a simpler form of bankruptcy run by the Accountant in Bankruptcy. Higher MAP limits have been proposed from 1 April 2027, so a free Scottish money adviser is the best person to check where things stand for you.
You can usually get a Debt Relief Order (DRO) with a car on finance, because the car doesn't count as one of your assets. Under Hire Purchase (HP), conditional sale and Personal Contract Purchase (PCP), the finance company owns the car until you make the final payment. What happens next depends on whether your payments are up to date and what the car is worth.
| Your car | Counts as an asset? | What it means for a DRO |
|---|---|---|
| Owned, worth £4,000 or less | No | You can keep it |
| Owned, worth more than £4,000 | Yes | Usually rules out a DRO |
| Owned and adapted for a disability | Declared, but the car limit doesn't apply | You can keep it |
| On HP, conditional sale or PCP, payments up to date | No | Keep paying if the payments are allowed in your budget, or include the debt |
| On finance, with missed payments | No | The missed payments must go in the DRO, and the lender can take the car back |
| Motability lease | No | Payments are allowed in your budget |
Your adviser values an owned car using a recognised used-car price guide, so check what yours is realistically worth before you assume it's over or under the limit.
Car finance with no arrears can either go into the DRO or be left out while you keep paying. Leaving it out means the balance doesn't count towards the £50,000 debt limit. But the Insolvency Service has to accept the payments as an allowable expense, meaning part of your essential monthly budget.
Payments on a car worth £4,000 or less are normally allowed, and so are payments on a car adapted for a disability. For a pricier car, they're only allowed in exceptional circumstances. The Insolvency Service looks at when you took the finance out, whether public transport could do the job, and how the payments compare with what that would cost.
Someone else, such as a family member, can also keep up the payments for you, paying the lender directly. Your adviser needs to know about this when they send your application.
Missed car finance payments must be listed in the DRO, and they count towards the £50,000 debt limit. If the lender has already ended the agreement, the whole outstanding balance goes in instead. Once the debt is in a DRO, you can't keep paying it yourself, and the lender can take steps to get the car back (unless someone else makes the payments for you).
Voluntary termination lets you end an HP or PCP agreement and return the car once you've paid half the total amount payable, under the Consumer Credit Act 1974. If you've paid less than half, you'll owe the difference up to that halfway point, and that shortfall can be listed in the DRO. Your adviser will then redo your budget without the car's costs, adding what you'd spend on public transport instead.
Some finance agreements let the lender end the agreement if you enter any kind of insolvency, so ask your adviser to read yours before you apply. And if your finance finishes during the DRO, you'll own the car outright and must report it. That's fine if it's your only car and it's worth £4,000 or less, but a more valuable car could see the DRO cancelled.
A Debt Relief Order (DRO) lowers your credit score and usually stays on your credit file for 6 years from the date it's approved. Any lender checking your file in that time can see you weren't able to pay your debts. That makes fewer deals available to you, and the ones that are tend to cost more.
Here's how the dates work in practice. Say your DRO is approved on 1 March 2025. The DRO period would normally end on 1 March 2026, and the entry would usually drop off your credit file in March 2031.
The effect fades as time passes, especially if you manage everything since without missing a payment. Many lenders give more weight to your recent behaviour than to a DRO from several years back. You also can't apply for another DRO until 6 years after the last one.
Car finance after a DRO is possible, usually through specialist lenders who work with people with poor credit, and your chances tend to improve the longer it's been since the order ended. These lenders look at how long ago the DRO finished, whether you've kept up every payment since, how steady your income is and whether the repayments fit your budget.
Once the 12-month DRO period is over, the rule about telling lenders before borrowing £500 or more no longer applies. But the DRO is still on your credit file, so answer honestly if a lender asks about past insolvency.
There's no fixed waiting time. Some specialist lenders may consider you soon after the DRO ends, and your options widen as the DRO gets older and then drops off your credit file.
Expect a higher interest rate than someone with a clean file would get, because lenders price in the extra risk. Many specialist lenders offer Hire Purchase (HP), where you pay fixed monthly instalments and own the car outright after the final payment. That's simpler to budget for than a PCP with a large optional payment at the end.
A deposit can lower the amount you borrow (if you have one). Most people coming out of a DRO have very little saved, though, and some specialist lenders will consider an application with no deposit at all.
Choose a car that leaves you breathing room in that budget. A missed payment so soon after a DRO would set your credit file back again, and a cheaper, reliable car that gets you from A to B is usually the safer pick.
Free, confidential debt advice about a DRO is available from StepChange, National Debtline and Citizens Advice, and an approved adviser there can apply for the DRO for you. MoneyHelper, the government-backed money guidance service, can point you to free advice near you. Speak to one of them before you sign any new credit agreement, whether you're thinking about a DRO or already in one.
Be wary of anyone offering "guaranteed" car finance during a DRO. No genuine lender can promise approval, and a guarantee like that is a common sign of a scam.
If your DRO has ended, a broker can check several specialist lenders at once, so you don't have to apply to each one yourself. Carplus works this way, as a credit broker rather than a lender.
We'll show you what you could be eligible for using a soft search, so there's no impact on your credit score at this stage.
Still in your DRO, or not sure a DRO is right for you? Talk to your debt adviser first, then come back when you're ready to look at cars.
