Offering an alternative to bankruptcy, a Part IX Debt Agreement can provide a pathway out of debt for borrowers unable to keep up with their repayments.
With that being said, there are important factors to be aware of before entering into a Part IX Debt Agreement – namely, how it can affect your ability to get approved for further finance.
In this post, we’ll look at what a Part IX Debt Agreement is, what consequences forming a Part IX Debt Agreement can have, and what you can do to move past those consequences to get approved for a car loan.
What is a Part IX Debt Agreement?
Formed between you and your creditors via an administrator, a Part IX Debt Agreement sets out an agreed-upon schedule of payments within a legally binding payment plan, to allow you to repay debts you could not otherwise afford to pay.
As part of the debt agreement, your creditors agree to receive an amount of money you can afford to pay back, typically down to 60% of the original amount owing. Generally, interest and fees are also waived.
While you must meet certain criteria to enter into a Part IX Debt Agreement, doing so can prevent you from filing for bankruptcy. In addition, once you have repaid the agreed-upon amount over the set repayment schedule, your creditors cannot recover the rest of the money you owe.
What happens after a Part IX Debt Agreement?
While a Part IX Debt Agreement may offer an alternative to bankruptcy, it is still a legally binding agreement settled under the Bankruptcy Act. As such, the consequences of forming a Part IX Debt Agreement are serious.
If you form a Part IX Debt Agreement with your creditors:
- Your name will be entered in the National Personal Insolvency Index (NPII) for five years.
- Your name will also be recorded in the Public Records section of your credit history for at least five years (or longer if anything further goes wrong).
It’s also worth noting that if you don’t make your agreed repayments for six consecutive months, your Part IX Debt Agreement will be automatically terminated. This will have further repercussions, both in terms of your debt and your credit file.
How does this affect your ability to get approved for future financing? When you apply for a car loan – or any other type of finance – the lender will check your credit file to assess your creditworthiness.
With a Part IX Debt Agreement on your credit file, many lenders will decline your application as a result of you being too high risk.
Getting approved after a Part IX Debt Agreement
Want to apply for a car loan, but have a Part IX Debt Agreement in your name? Here’s what you can do to improve your chances of getting approved.
- Wait 12 months
Before you apply for more finance, you must wait for at least 12 months after forming your debt agreement. In order to qualify for finance, you must have made all payments under the agreement on time, with no defaults.
Bear in mind that some lenders may still choose not to lend to you even after this 12 month period has passed. For those risk averse lenders, you may only be able to apply once the debt agreement has been paid and ‘fallen off’ your credit file.
- Improve your position
Potential lenders want to know you are no longer a risk, which means, before you apply for a car loan, you should work on improving your position.
This generally means:
- Having good banking behaviour, with no overdrafts or dishonours on your account,
- Being in good standing with your landlord and other financiers,
- Being in regular, paid employment,
- Having favourable loan or finance-based references,
- Having a substantial disposable income after rent or mortgage repayments, bills and other expenses,
- Having a stable rental or residential history,
- Having an appropriate vehicle choice.
- Do your research
Not all lenders provide car loans to borrowers with a Part IX Debt Agreement. It’s up to you to find out which lenders will be more likely to provide you with a car loan with that type of agreement on your credit file.
You do not want to apply for a car loan and get rejected, as this will damage your credit further, making it even harder to get approved.
- Know what to expect
With a Part IX Debt Agreement on your credit file, you should know that not only will it be harder to get approved for a car loan, you will also likely pay a higher rate of interest when you are finally approved.
TIP: While car dealers may extend finance to you with a Part IX Debt Agreement on your file, it’s unlikely the terms will be in your favour. Be sure to shop around before agreeing to dealer finance to avoid paying more than what’s necessary.
- Get your documentation in order
You will likely have to provide extensive documentation in order to prove you are in a position to repay any new finance you apply for. Be prepared to provide pay slips, tax returns and notices of assessment, loan and credit card statements, proof of residence and any other documentation to show you are improving your financial position and will be a low risk borrower.
- Ask an expert
Knowing where you stand and what’s expected of you can improve your chances of approval immensely. At Car Loan World, we can help you find loans and lenders to match both your needs and your financial situation. Contact us today to see how we could help.
