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If you’re having trouble managing your debts and have tried everything to get a handle on them with little luck, you may be forced to take more aggressive steps. This may include filing a consumer proposal.
Like bankruptcy, a consumer proposal can negatively affect your credit and make it difficult to qualify for loans. But what if you want to take out a car loan to finance the purchase of a vehicle? Is it possible to secure an auto loan after a consumer proposal, given its effect on your credit?
Let’s take a closer look at how a consumer proposal can impact your car loan application.
A consumer proposal can not only negatively impact your credit scores 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. 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.
Your ability to secure an auto loan will depend on your private lender’s requirements and your ability to repay the loan. The lender will want to assess your financial profile and habits to make sure that you’re capable of making timely payments to pay back the loan.
After a consumer proposal, you’ll want to prove to your lender that you’ve made timely payments and successfully completed the program. Even though the lender will still see the “R7” rating on your credit report — which means you’ve made arrangements to settle your debts with creditors — any supporting documentation will prove that you were able to keep your end of the bargain with previous lenders to get your financial health back on track.
In terms of securing a car loan after a consumer proposal, you’ll have better luck with private and alternative lenders. Generally speaking, traditional lenders, like banks and credit unions, may be less likely to offer you a car loan in the months following a consumer proposal.
| Amount | Interest | Term (Months) | ||
 | $500 - $50,000 | Up to 46.96% | 12 - 84 | Learn more |
 | $500 - $35,000 | 29.99% - 46.96% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 39.99% | 9 - 36 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $7500 - $59,995 | 3.95% + | 12 - 96 | 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 |
 | Up to $50,000 | 8.99% + | 12 - 72 | Learn more |
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.
To maximize the chances of getting approved for a car loan after a consumer proposal, take the following steps:
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. After inputting a few simple pieces of information — such as the type of loan you need, your income, and your credit score — the aggregator will immediately populate a list of lenders and rates that you may qualify for. 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.
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.
Before starting any application, be sure to gather all the necessary documents. This may include bank statements, an employment letter, and proof that you’ve successfully completed your consumer proposal.
Show the lender all relevant paperwork associated with the program, including the certificate of completion. These documents will show the lender that you were able to comply with the program and are working diligently to pay off your debt.
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.
When applying for a car loan following a consumer proposal, you’ll need to provide the lender with certain documentation, including the following:
Driver’s license. If you’re legally allowed to drive in your province or territory, you’re more likely to repay your car loan. Presenting your driver’s license to your lender may be a requirement when applying for a car loan after a consumer proposal.
Proof of income. Your lender will want to know exactly how much you earn each month, and how long you’ve been at your current job. 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 and earn a monthly minimum of $1,800. Your lender may also accept other sources of income, such as government benefits.
Bank account. 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.
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.
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.
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 35%. 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.
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.
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 administered by a Licensed Insolvency Trustee (LIT) who will work with you to come up with a proposal, which will be presented as an offer to your creditors to help eliminate your debt sooner rather than later.
A consumer proposal works as follows:
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. 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.
Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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