IVA clients and Payday loans – worse than a last resort?

Taking out a loan whilst in an IVA can put your IVA at risk. Find out exactly why here.

ClearDebt is not one of those companies that slam payday loans – at the bottom of this blog you’ll find links to a couple of things we’ve written about them in the past.

However, taking out a payday loan whilst you are in an IVA could put your Individual Voluntary Arrangement at risk.

When they do the client’s annual review, our IVA supervisors are noticing a number of clients who have taken out a payday loan – often to deal with an unexpected financial crisis but sometimes, they say, “to help with Christmas” or even “I just ran out of money”.

In many cases, it was quite unnecessary for the client to take out this loan (we could have helped) and in some; it’s actually put their IVA at risk.

IVA hardship

Now, if any client can prove hardship we will always try to help by offering a payment break and, if necessary, a variation for reduced payments either temporarily or permanently – this will usually involve us conducting a full income and expenditure review. If a client’s situation changes dramatically and the IVA is no longer viable we will always discuss alternative options (including bankruptcy) – if your situation is getting worse and there is no light at the end of the tunnel – please talk to us and don’t make your situation worse by taking out more debt. We will help wherever we can.

We encourage people in an IVA not to take out any new credit at all, but, people are permitted to obtain a total of no more than £500 without their IVA supervisor’s permission. So, a very small loan, paid back quickly, won’t break your IVA. However, as I’ve pointed out above, it might be better to contact us and see what we can do to ease your situation – it’s in everyone’s interests that you are able to complete your IVA and adding extra interest payments, even for just a month or so, isn’t going to help.

IVA default

The real problem arises where an IVA client has obtained credit of more than £500. Not only, of course, are bigger amounts more difficult to repay, but your IVA provider has no alternative but to tell you that you are in breach of your IVA and that you have 28 days to repay the outstanding loan or make proposals to do so. Most people in IVAs won’t have the funds to do this. Where the debtor can’t repay – or even where proposals are put forward – we have to call a default meeting with creditors. We find they try to be helpful – but still, often the result is the end of the IVA.

Please – if you are struggling for any reason at all, make your IVA supervisor the first person you call – not the last.

Here are links to some of our previous blogs on payday loans:
Debt Industry Opinion – Payday loans and debt
Should interest rates be capped?

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  1. One can get in over their heads with payday loans if they are not careful. You do not want to be taking a payday loan out every week just so you can have cash before you are paid. These types of direct payday loans understandably have a reputation that makes many people weary due in large part to the fact that the large amounts of interest associated with them is often highlighted by the media. However, the repayment time frame is so short that even though the interest rates seem incredibly high, in the end not that much additional money is expected to be paid back particularly in comparison to a larger loan taken out over a longer period of time.

    1.  I absolutly agree with your point, this happens to the most of the people applying for payday loans. In the later stage they end up by paying more that double the amount they had borrowed.

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