Can I get car finance on a debt management plan (DMP)?
If you’re on a Debt Management Plan (DMP) and are wondering about your options for car finance, we’re here to help. We understand how important a car can be for daily life, so we’ve answered some common questions about car finance on a DMP.
What Are Your Car Finance Options with a DMP?
If you’re wondering ‘can I get a car loan or finance while on a debt management plan?’ try not to worry. It could be possible to get car finance on a DMP but it will be more challenging, as lenders may view you as a higher risk. However, some specialised lenders could help individuals with bad credit histories, including those on DMPs.
At Car Finance 247, we work with a panel of trusted lenders who could offer bad credit car finance. These lenders understand financial difficulties and may help if you need DMP car finance, subject to status.
Types of car finance with a DMP
Hire Purchase (HP) – Pay a deposit, then fixed monthly payments. You’ll own the car at the end. Often more accessible for people on a DMP, but interest rates may be higher.
Personal Contract Purchase (PCP) – Typically lower monthly payments with a larger final balloon payment if you want to keep the car. PCP can be slightly more complex and may be harder to get with a DMP, but it may still be worth exploring.
If you already have a car on finance, refinancing your car could mean lower payments, which could ease the pressure on your budget and make repayments more manageable. However, it’s important to bear in mind that spreading your outstanding loan over a longer term can reduce the monthly payment but may increase the total amount of interest payable.
Before applying for any loan, talk to your DMP advisor first, and review your budget to ensure the payments fit within your DMP. Please remember, not everyone on a Debt Management Plan will be accepted for car finance. Lenders assess affordability carefully, so borrowing more than you can repay could put you at risk. Credit is subject to status.
What is a Debt Management Plan (DMP)?
A Debt Management Plan is an agreement between yourself and your creditors to pay off all your debts.
If you’re still able to pay some money towards your debt but you can’t afford your full monthly repayments, then a DMP could help. They’re intended to help you pay your debts at an affordable rate, and in most cases, you should be able to work something out with your creditors.
You’ll usually work with a Debt Management Plan provider, paying them a regular monthly amount that will then be distributed among the people you owe.
You have three options when setting up a Debt Management Plan:
Ask for advice - Think about contacting free debt charities who are able to offer help and advice on what could be best for you.
Set up your plan yourself - Setting up your own DMP may be more complicated than going through debt management companies, but it could also be cheaper in the long run.
Apply with a licensed debt management company - If you arrange your Debt Management Plan with a licensed company, you will pay one monthly payment to them, which will then be distributed between your creditors.
It's important to note that DMPs can only be set up for unsecured debt, rather than secured debt.
How Being on a DMP Affects Your Credit and Car Finance Options
A DMP can appear on your credit report, although it won’t be listed as a separate entry. Instead, your creditors typically add a note or flag to your account to show that you’re making reduced payments through a DMP.
This flag is visible to future lenders and anyone else reviewing your credit file. It signals that you’ve had difficulty keeping up with your original repayment terms, which could affect your creditworthiness.
Car finance lenders look at your credit score and credit report when deciding whether to offer you finance and what terms to offer. Some lenders might be cautious after seeing a DMP. However, specialised lenders may still look at your application, especially if you’ve kept up with your payments.
However, you will likely face higher interest rates or a lower borrowing limit because lenders may view you as risky to lend to. Credit is subject to status.
How to Apply for Car Finance on a DMP
If you’re currently on a DMP, car finance might be trickier, but it’s not always impossible. Here’s how to apply and try and boost your chances of approval.
Tips to Improve Your Chances of Getting Approved
Getting car finance on DMP isn’t always straightforward, but there are steps you can take to try and boost your chances:
Check your credit report – Make sure all the information is accurate and up to date. Fixing any mistakes could help your score.
Keep up with your DMP payments – Lenders may be more likely to approve your application if they can see you're managing your debts responsibly.
Save a deposit – Putting down a deposit could lower the amount you need to borrow and show the lender you're financially committed.
Consider a guarantor – Having someone with a stronger credit history agree to back your loan may boost your chances.
Use a specialist lender – Some lenders we work with understand poor credit history and finances and could be able to offer you a deal even if you’ve been turned down elsewhere, subject to status.
Opt for a used car – You could also consider getting finance on a used car as payments may be cheaper than financing a new car.
Note: Your car finance application may involve a credit check which could affect your credit score. Some lenders offer a soft search first, which does not impact your rating, but further hard checks may be needed if you proceed which may affect your score.
How Car Finance on a DMP Compares to Other Debt Situations
Car finance with a Debt Management Plan may be more challenging. But, being on a DMP could be seen more favourably for car finance than having multiple defaults, County Court Judgements (CCJs), or Individual Voluntary Arrangements (IVAs).
That’s because a DMP shows you’re actively working to repay your debts. Just bear in mind that it still signals to lenders that you’ve had financial difficulties, so you may face higher interest rates or fewer options than someone with a clean credit history.
What If You're on a Debt Relief Order (DRO)?
While it's challenging, getting car finance with a debt relief order is possible. Similar to DMPs, specialised lenders might be able to help, but it's crucial to consider the impact on your finances.
Once the DRO period ends, you may have more flexibility in accessing car finance options.
A DRO stays on your credit report for a year. It may hurt your creditworthiness for that time, but it doesn't necessarily stop you from getting car finance later. But, you may have fewer options. And you may face higher interest rates compared to individuals with stronger credit.
Speak to a financial advisor or debt specialist to explore your car finance options post-DRO to make sure you can afford your payments.
Can You Get Car Finance After Bankruptcy?
Car finance after bankruptcy can be challenging but it’s not always impossible. Once your bankruptcy is discharged, and you show responsible financial behaviour, your credit may improve. This might make it easier to get car finance on more favourable terms.
In general, the longer it has been since your bankruptcy, the better your chances of getting car finance as long as you have taken steps to improve your credit score and financial situation. Lenders may want proof that you've worked on your credit. They also look for signs that you've managed your finances and debts responsibly since then. Credit is subject to status.
Steps to Take If You’re Applying for Car Finance on a DMP
If you do decide to apply for finance with DMP, here are some steps you might want to take first:
Review your budget – Make sure you can afford the repayments on top of your DMP commitments.
Get a quote without affecting your credit score – Soft search options let you see what you might be eligible for without damaging your credit further. Only if you decide to proceed will a hard search be conducted, which could affect your credit score.
Gather documents – Lenders may ask for proof of income, bank statements, and DMP details.
Be honest on your application – Hiding your DMP won’t help. Transparency builds trust and avoids issues later.
Compare car finance options – Look at HP, PCP, and personal loans to see what works best for your needs.
Following these steps could help increase your chances of approval for DMP car finance. The key is to stay organised, explore all your options, and be honest in your application.
Disclaimer: Car Finance 247 Limited is a credit broker, not a lender. We work with trusted lenders to find finance options that may suit your needs. Credit is subject to status, affordability checks, and lender approval. Car finance is a regulated credit agreement. Always read the terms and conditions carefully. Consider seeking independent financial advice if you’re unsure about borrowing.