Having a Trust Deed will severely impact your credit rating and make it difficult to access most forms of credit, including car finance. However, while you’ll likely face higher interest rates and stricter terms, securing car finance during or after a Trust Deed isn’t impossible.
When you enter into a debt solution like a Trust Deed, it’s normal to worry about how it’s going to impact other areas of your life and the belongings you’ve worked hard to afford, such as your home and car.
However, while you’ll be able to keep your car as long as it’s valued under a certain amount and you can prove you need it, the process of getting a car on car finance can be a little trickier to navigate.
In this article, we’ll cover everything you need to know about Trust Deeds and car finance, including whether you can get car finance during a Trust Deed and what happens to any existing car finance agreements during a Trust Deed.
What is a Trust Deed?
A Trust Deed is a legally binding agreement between you and your creditors (the people or businesses you owe) to repay your unsecured debts through a series of monthly payments based on your income and expenditure.
It is one of the many Scottish debt solutions available to those struggling with unaffordable debt and is often considered to be the Scottish equivalent of an Individual Voluntary Arrangement (IVA) although there are some key differences when it comes to their benefits, risks, and fees.
Most Trust Deeds last four years, during which time your credit score will be negatively impacted and you’ll struggle to access further credit, including a mortgage, loan, phone contract, and even a bank account. However, it’s important to note that the missed payments that led to the Trust Deed will have already damaged your credit score.
When the majority of your creditors agree to the terms of your Trust Deed, it becomes a Protected Trust Deed (PTD). Under a PTD, your creditors won’t be able to contact you, take legal action against you, or add interest or charges to your debt.
What is car finance?
Car finance is the term given to the process of borrowing money to fund the purchase of a car and typically involves paying a deposit and a series of monthly payments over a set period (usually between one and five years).
There are various car finance options available, including Hire Purchase (HP) and Personal Contract Purchase (PCP), each with its own set of advantages and disadvantages depending on your financial circumstances.
However, while car finance can allow you to spread the cost of a car over several months or years, there are various risks and fees you must be aware of being agreeing to anything. Some car finance options also use your car as collateral, meaning your car can be repossessed if you miss payments.
Does my car count as an asset?
By definition, anything of value that you own is considered an asset and can be used to pay off your debts. This means that, in the eyes of the law, a car counts as an asset.
When you enter a Trust Deed, you may have to transfer your assets to the person overseeing your arrangement – known as a ‘Trustee’ – and these items can be sold to raise money to pay your creditors.
However, a £3,000 valuation threshold applies to vehicles. So as long as your car is worth less than £3,000, you should have no problem being allowed to keep it and continue using it as normal.
For cars worth more than £3,000, a written plan will be put in place and you may be asked to make extra monthly payments, make a one-off payment, or downgrade your vehicle before your arrangement starts.
Can I sell my car during a Trust Deed?
A Trust Deed is a legally binding agreement between you and your creditors to repay part or all of your debt. However, because it involves transferring your assets to a Trustee who can then use them to repay your debts, selling your car while you’re in a Trust Deed can be a complicated issue.
Technically, there are no rules stating that you can’t sell your car during a Trust Deed, but it’s important to note that the process isn’t as straightforward as it would be under normal circumstances.
For example, as your car is considered an asset under your arrangement, you’ll need to get permission from your Trustee before selling it. Furthermore, the proceeds from the sale will typically be used as Trust Deed payments unless you can replace your car with a vehicle of a similar value.
Can I keep my car during a Trust Deed?
Whether or not you can keep your car during a Trust Deed largely depends on its value and your personal circumstances. Generally, if your car is essential for work or family life, is not of high value, and you can continue paying your monthly finance payment, you should be allowed to keep it.
However, if your car is of significant value and you can’t prove that it’s essential for work or family life, your Trustee might require you to sell it and buy a cheaper model, with the surplus money going towards your debt.
When it comes to Trust Deeds and car finance, each case is unique and there is no way to tell whether you’ll be able to keep your car without taking your specific circumstances and the discretion of your Trustee into account.
Debt Solution Finder
Can I get car finance during a Trust Deed?
Obtaining car finance during a Trust Deed isn’t impossible, but it can be challenging and you’ll likely face higher interest rates and less favourable terms. This is because a Trust Deed severely impacts your credit rating, making lenders more cautious about approving you for finance.
You’ll also need to get permission from your Trustee before taking on any new debt, including car finance, and they’ll usually only agree if the finance is deemed affordable and necessary, such as if the car is essential for work.
Can I get car finance after a Trust Deed?
Getting car finance during a Trust Deed can be difficult, but your chances will greatly improve once you’ve been discharged from your arrangement. This is because you’ve proven that you can stick to a payment schedule and have committed to dealing with your debts.
However, it’s important to note that even if you’ve made your final payment, your Trust Deed will remain visible on your credit report for a total of six years. This means that, if your arrangement lasts the typical four years, you may still struggle to get credit for another two years.
This is why it’s important to make responsible financial decisions and take steps to improve your credit score as soon as you’ve been discharged from your Trust Deed. The sooner you can rebuild your credit score, the sooner you can secure car finance and move on with your life.
Can my Trustee sell my car during a Trust Deed?
As previously mentioned, your Trustee is within their right to take control of your assets and sell them to raise more money for your creditors during your Trust Deed.
However, this is usually only considered if your car is of high value and replacing it with a less expensive model wouldn’t cause you undue financial hardship.
Again, each Trust Deed is unique and whether you will be able to keep your car is up to the discretion of your Trustee.
Can I get car insurance while in a Trust Deed?
Being in a Trust Deed shouldn’t affect your ability to obtain car insurance – which is a basic requirement for car owners in the UK – but it’s important to shop around for the best deal and ensure the premiums are affordable and within your budget.
If, for whatever reason, you don’t pay your car insurance, the insurance company will simply cancel your coverage and you’ll no longer be insured. This will not only mean you are driving an uninsured vehicle but put you at risk of further legal action and you may be sent a default notice.
However, because the insurance company won’t lose out or be owed money when this happens, you should have no problem getting approved for car insurance during a Trust Deed.
What happens if I don’t make my car finance payments?
What happens when you don’t make your car finance payments depends on which type of car finance you have and why you broke the terms of the credit agreement.
For example, if you handed your car back early or could no longer afford your repayments, you may have car finance shortfall debts, which are classed as unsecured debt.
When this happens, the debt can be included in your Trust Deed and the lender will be added to the list of creditors bound by your arrangement. This is also the case for a Debt Arrangement Scheme (DAS).
Here’s an example of how we can help.
Let's say you owe...
Credit Card
Bank Loan
£13,420.00
Collection Agency
£4,715.00
Payday Loan
£1,152.67
Rent Arrears
£477.00
Council Tax
£279.04
Total amount owed:
£22,707.91
After a Trust Deed
Example case completed in 2023. Repayment calculated using income and expenditure data. Monthly payments and write off percentages are based on individual circumstances.
Is there anything else I should know about Trust Deeds and car finance?
Whether you’re worried about being able to keep your car during a Trust Deed or want to get car finance during a Trust Deed, you must do your research to ensure you know what you’re signing up for.
Don’t hesitate to seek expert debt advice if necessary and always inform your Trustee if you think you won’t be able to make your car finance payment or Trust Deed payment.
Car finance agreements can last anywhere from 12 months to five years and have a significant impact on your finances, including your credit score, so it’s not a decision that should be taken lightly.
