If you feel trapped by bad debt, you may have already heard about Part IX Debt Agreements (or “Part 9 Debt Agreements.”) Taking out a Part IX Debt Agreement is seen as an alternative to declaring bankruptcy. These agreements are often presented as a debt consolidation product, offering an “easy way out” and “one easy payment plans” to satisfy creditors. This isn’t completely true. There are many myths out there about Part IX Debt Agreements and whether they better qualify you for a car loan.
What is a Part IX Debt Agreement?
A Part IX Debt Agreement is a formalised, legally-binding agreement between yourself and your creditors to pay back debts. These Debt Agreements are overseen by the Australian Financial Security Authority (AFSA). The conditions of these Debt Agreements may vary due to personal circumstances and the amounts outstanding to your creditors. Read more about them here at the AFSA website.
So it won’t show up on my credit history like a bankruptcy?
No. A Part IX Debt Agreement will negatively impact your credit history in the same way a bankruptcy can. A record of your Debt Agreement will show up for five years, including the record of your overdue or defaulted debts. This can make borrowing extremely difficult for people in this situation.
Can I take out a car loan with a Part IX Debt Agreement?
While your Part IX Debt Agreement is active, mainstream car financiers will likely refuse you finance, as you are too high a risk to take on. Dealers may extend finance to you, although these deals rarely, if ever, favour the buyer and are best avoided.
What you need to do
Generally, if you want to apply for car finance, you will have:
- Been released from your Part IX Debt Agreement for a minimum of twelve months
- Good banking behaviour, such as no direct debits or overdrafts for at least six months
- An age or circumstance appropriate vehicle choice
- In good standing with landlords, your mortgage broker or other financiers
- Have favourable loan or finance based references
- In regular, paid employment
- Disposable income, after rent/mortgage repayments, bills and other vital expenses are considered
- A stable rental/residential history.
You will also likely need to provide extensive documentation to prove your circumstances have improved and you are on the way to having good credit. These may include pay slips, tax returns/notices of assessments, loan or credit card statements, proof of residence as well as the usual application requirements. Lenders will review your documents to assess whether you are a low enough risk to lend to.
In most cases, prime or mainstream lending rates will not be available to you straight after you’ve settled a Part IX Debt Agreement. It’s quite likely you will only have access to bad credit car loans or sub-prime interest rates. The upside is that you can use this as the first rung on the ladder to good credit and a better negotiating position in the future.
Savvy can help
Savvy have years of experience helping people who have been released from Part IX Debt Agreements achieve a second chance at car finance. Contact one of our financial professionals today to discuss your options.