Can you get a car loan after a debt agreement?

If you’re struggling with debt, a debt agreement can be an alternative to filing for bankruptcy.

A debt agreement - sometimes known as a Part 9 or Part XI agreement - is a formal arrangement between you and your creditors that outlines the way in which the debt will be repaid without filing for bankruptcy. These are overseen by the Australian Financial Security Authority (AFSA). The conditions vary based on the borrower’s circumstances and the outstanding loan amount.

 The consequences of debt agreements are similar to bankruptcy:

• Your name is entered in the National Personal Insolvency Index (NPII) for five years.
• Your name is also recorded in the Public Records section of your credit history for at least five years (or longer if something further goes wrong).
• If you don’t make the agreed repayment for six consecutive months, the agreement gets terminated automatically.

You may be eligible to apply for a car loan on a debt agreement 12 months after signing the agreement. In order to potentially qualify, all payments under the agreement should have been completed on time with no defaults. 

If you qualify for a Part IX debt agreement car loan, you’ll likely have to pay a higher rate of interest than other borrowers. You may be able to qualify for a loan from a dealer, but if you’re considering this option, do review the interest rate and terms you’re getting. 

You may also have to provide additional documentation that shows your circumstances have improved and your credit is also improving. Some documents you may need are payslips, assessment notices, credit card or loan statements, tax returns, and proof of address. 

Your bank account should also be clean with no overdrafts or dishonours. Lenders may also consider whether your income is stable (aka you’ve been employed part- or full-time for at least 6 months) and if you’ve stayed in the same address for 12 months. 

When you enter into a Part 9 agreement, it will be reflected on your credit score, which is likely to classify you as a high-risk borrower. As a result, the majority of mainstream lenders may be reluctant to lend to you. This is for your own protection, as taking on any more debt that you may not be able to service could damage your financial health and credit history further.