A car is often necessary when commuting to work, attending appointments, or simply getting around, especially if you live in a remote area where public transportation is limited. Unfortunately, buying a car can be difficult, especially if you’re in or just completed a consumer proposal. You might wonder if getting a car loan is even possible.
While your consumer proposal can make getting a car loan challenging, it’s still a possible option. Let’s dive into how you can get a car loan if you’ve previously filed for a consumer proposal.
Key Takeaways
- Filing a consumer proposal seriously hurts your credit score, which can make it difficult to get a car loan.
- While traditional lenders may deny your car loan application after a consumer proposal due to poor credit, you may be able to secure a loan with an alternative lender.
- After you’ve completed your consumer proposal, the best thing to do is work towards increasing your credit score to improve your chances of loan approval.
Can You Get A Car Loan After A Consumer Proposal?
A consumer proposal can not only negatively impact your credit score, but it will remain on your record for three years following your last payment. This, unfortunately, can impact your ability to secure a car loan even after you’ve completed your consumer proposal. That said, it’s not impossible to get approved for a car loan after a consumer proposal.
Car Loan After A Consumer Proposal With A Bank
After a consumer proposal, you’ll want to prove to your lender that you’ve made timely payments and successfully completed the program. This will show your lender you were able to keep your end of the bargain with previous lenders to get your financial health back on track.
Car Loan After A Consumer Proposal With A Private Lender
There are many private and alternative lenders that allow borrowers to obtain affordable car financing, despite being in or completing a consumer proposal. While you’ll likely be subject to more stringent criteria and higher interest rates, you can still get approved for a car loan after a consumer with a private lender
After a consumer proposal, you’ll want to prove to your lender that you’ve made timely payments and successfully completed the program. This will show your lender you were able to keep your end of the bargain with previous lenders to get your financial health back on track.
Best Bad Credit Car Loan Lenders In Canada
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 35% | 12 - 84 | Learn more |
 | $7,500+ | Varies | 24 - 96 | Learn more |
 | $500 - $35,000 | Starting at 29.99% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 34.99% | 9 - 60 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
What Factors Affect Car Loan Approval After A Consumer Proposal?
Several factors impact your ability to get a car loan after a consumer proposal:
| Credit Score | Your credit score will take a hit after filing a consumer proposal, but certain lenders may consider other factors. |
| Income | A high income will boost the odds of loan approval. |
| Employment | A steady job can improve your chances of loan approval. |
| Down Payment | A larger down payment reduces the loan amount, which reduces the lender’s risk and makes them more willing to approve your loan application. |
| Debt-To-Income Ratio | Keeping your existing debts low relative to your income means you have more money left over to cover car loan payments. |
| Lender | Traditional lenders may hesitate to offer you a loan after a consumer proposal, but alternative lenders may offer more flexibility. |
Can You Get A Car Loan During A Consumer Proposal?
Obtaining a car loan after you’ve successfully completed a consumer proposal is one thing, but is it possible to get a loan during this debt relief arrangement?
The short answer is yes, you may be able to secure auto financing while you’re still in a consumer proposal. However, keep in mind that getting approved for a new car loan during a consumer proposal is challenging.
Not only can the R7 rating on your record impact your ability to secure a car loan, but applying for new credit could reflect badly on your credit report. Plus, you’re adding more debt to the pile.
Again, your best bet is to work with an alternative lender that deals with bad credit borrowers and those who have previously worked through a debt relief program. Having said all that, you may have better luck waiting until your consumer proposal is completed before applying for a car loan.
How To Get A Car Loan After A Consumer Proposal
To maximize the chances of getting approved for a car loan after a consumer proposal, take the following steps:
Step 1. Compare Lenders
Consider doing some comparison shopping before you settle on a lender. And since you’re either in the middle of a consumer proposal or only recently completed one, you’d be better off shopping among alternative online lenders, rather than with banks. As noted earlier, alternative lenders are more inclined to work with bad credit borrowers and those who’ve recently been involved with a debt relief program than traditional lenders.
The easiest and quickest way to compare lenders is to use an online loan aggregator, like Loans Canada. After inputting a few simple pieces of information — such as the type of loan you need, your income, and your credit score — a list of lenders and rates that you may qualify for will be immediately populated for you. From there, you can choose which lender you’d like to find out more about, as well as the details about the car loans and rates they offer.
Step 2. Get Pre-Approved For A Car Loan
Getting pre-approved is a smart move, no matter what type of loan you’re applying for, including a car loan. With a car loan pre-approval, your lender will tell you how much they’re willing to loan you based on your financial and credit profile. This can help you compare offers and give you access to the lowest available interest rate for you.
Moreover, it can help speed up the final loan approval process. However, do note that this pre-approval is conditional until the lender is able to verify the information you’ve provided.
Learn more: How To Get A Car Loan Pre-Approval
Step 3. Gather Your Documents
Before starting any application, be sure to gather all the necessary documents. This may include the following:
- Bank statements
- Pay stubs
- Employment letter
- Proof that you’ve successfully completed your consumer proposal
Show the lender all relevant paperwork associated with the program, including the certificate of completion of your consumer proposal. These documents will show the lender that you were able to comply with the program and are working diligently to pay off your debt.
Step 4. Make Sure Your Finances Are In Order Before Applying
Your lender will want to verify that you have the finances available to comfortably cover your loan payments. But if your debt load is already eating up a big chunk of your income, you may not have much cash left over to contribute to new car loan payments.
Try to keep your debt-to-income (DTI) ratio as low as possible. Your DTI refers to your debt relative to your income. The more income you have leftover after paying all your bills every month, the less of a risk you’ll be for the lender.
Step 5. Make A Larger Down Payment
Coming up with a down payment of at least 10% to 20% of the vehicle price can help boost your odds of loan approval. This is especially true if you’re just coming out of a consumer proposal. Plus, it means less money to have to borrow, which can keep your debt low and more manageable.
What Do You Need To Get A Car Loan After A Consumer Proposal?
When applying for a car loan following a consumer proposal, you’ll need to provide the lender with certain documentation, including the following:
- Proof Of Identity. To get a loan, you need to prove you are who you say you are. As such, your lender may ask to see your passport or driver’s license.
- Proof Of Address. You’ll need to show the lender that you live in Canada. Documents that may prove your residency include a utility bill or rental agreement.
- Proof Of Income. Your lender will want to know exactly how much you earn each month. Ideally, you should earn a monthly minimum of at least $1,800, though each lender will have their own specific criteria. Your lender may also accept other sources of income, such as government benefits.
- Proof Of Employment. Steady employment will increase your odds of car loan approval, as will a certain income threshold (depending on the lender). Ideally, you should be at your current job for at least three months.
- Bank Account Information. Most lenders will automatically withdraw car loan payments from your bank account every month. As such, you’ll need to show proof that you have an active bank account. The most common form of proof of an active bank account is a void cheque.
Tips For Getting A Car Loan After A Consumer Proposal
Once you’ve completed a consumer proposal to deal with your mounting debt, you may be ready to move on with your financial life, and that might involve applying for a car loan. But before you do, consider the following tips to maximize your chances of loan approval.
Rebuild Your Credit
As mentioned earlier, your consumer proposal will be noted on your credit report for about three years. Even though you may have successfully dealt with your debt, your credit score will be negatively affected by this debt relief solution. As such, you’ll need to work hard to build back your score.
One of the best ways to repair your credit is to apply for a secured credit card and make timely payments on it. Payment history is one of the most important factors used to calculate credit scores. If you miss payments, your scores can be negatively impacted.
Since it may be difficult to get approved for a conventional unsecured credit card, a secured credit card may be the next best thing. Each payment you make may contribute to repairing your credit score, but it will take a little while to see significant results, so be patient.
Learn more: How To Improve Your Credit Scores
Make Sure The Car Is Within Your Budget
Not only should you consider the cost of the vehicle, but also the interest rate and other fees associated with the car loan. This is where getting pre-approved comes in handy. In addition, you should create a budget according to your income and current debt obligations.
Figure out how much your monthly car payments will be, and factor that cost into your budget. Ideally, your debt-to-income ratio shouldn’t be any more than 44%, though some lenders may limit DTI ratios at 36%. Since your consumer proposal took care of your debts, your DTI should fall under this threshold. Just make sure not to drastically increase your DTI after adding a new car loan payment into the mix.
Add A Co-Signer
You may also consider adding a co-signer to your car loan to reduce the risk for the lender. With this arrangement, the co-signer promises to take over loan payments in the event that you fail to continue making them. The lower the risk, the higher the odds that you’ll get approved for a car loan.
When Should You Take Out a Car Loan After a Consumer Proposal?
Applying for a car loan after a consumer proposal may be fine in some situations, but not all. Consider the following before taking out a car loan:
| When Should You Take Out A Car Loan After A Consumer Proposal? | When Should You Not Take Out A Car Loan After A Consumer Proposal? |
| A while has passed since completing your consumer proposal. | You only recently filed a consumer proposal. |
| Your income is enough to cover car loan payments. | Your finances are not strong enough to cover additional car loan payments. |
| You’re working towards repairing your credit score. | Your credit score is severely damaged. |
| You need a car urgently. | You can wait to buy a car. |
| You have a large down payment saved up. | You don’t have much to put towards a down payment. |
What Is A Consumer Proposal?
A consumer proposal is an agreement between you and your creditors to pay a percentage of what you still owe them, or to extend the amount of time you have to repay them, or a combination of both. This agreement is facilitated by a Licensed Insolvency Trustee (LIT) who will help you come up with a proposal, which will be presented as an offer to your creditors to help eliminate your debt sooner rather than later.
How Does A Consumer Proposal Work?
A consumer proposal works as follows:
- Assessment Of Your Finances. Your LIT will help you determine how much you can afford based on what you own and what you owe, as well as how much your creditors are willing to accept.
- Filing Of Your Consumer Proposal. Your proposal will be filed with the Office of the Superintendent of Bankruptcy Canada, which is the entity that regulates LITs.
- Creditors Vote. Your proposal will be sent to your creditors, who have 45 days to vote whether or not to accept your offer. If your creditors reject your proposal, you may have to look at other options to resolve your financial issues, including bankruptcy.
- Payment Distribution. If the proposal is accepted, you’ll stop making payments to their creditors and make your agreed-upon payment amounts to your LIT, who will then distribute your payments to your creditors.
Final Thoughts
A consumer proposal is not ideal for your credit health, but it could be the best thing to help ensure your financial situation doesn’t get any worse if you’re struggling with your debt. Ultimately, a consumer proposal can affect your ability to secure a car loan. If you’re in the midst of a consumer proposal or recently completed one, you can still get a car loan, though you may have to look into alternative options besides your bank.
