Paying Off a Consumer Proposal With a Loan
While it may seem bizarre, there are lenders who extend credit to individuals for the purpose of paying off their consumer proposal. This is an attractive option because you can start rebuilding your credit the minute your consumer proposal has been paid off. In fact, the loan used to pay off your consumer proposal can contribute to the process of rebuilding your credit, as long as you’re responsible with the payments.
Using a loan to pay off a consumer proposal sounds great, but you may be wondering, what’s the catch? The biggest catch is the cost of using this type of financing. As with any type of loan or financing product there both pros and cons that should be taken into consideration based on your unique needs. Keep reading for everything you need to know about paying off your consumer proposal with a loan.
How long does it take for a consumer proposal to be accepted or rejected? Find out here.
Video: Consumer Proposal Explained
Advantages and Disadvantages
Consumers who are currently working through a consumer proposal are without a doubt experiencing financial issues, this is why taking on a loan may not be the best solution for your current financial situation. That being said, it doesn’t mean that it is the wrong choice for everyone.
- Start Rebuilding Credit. Once you’ve paid off your consumer proposal, you can start rebuilding your credit for a brighter financial future. Your credit score should improve so long as you handle the new debt responsibly.
- Completed Obligation. If you pay off your consumer proposal early, you don’t have to worry about missing payments and any obligations will be fulfilled.
- Remove Stigma. Being in a consumer proposal, unfortunately, does come with a stigma. Paying off your proposal sooner will help remove the stigma.
- Interest Payments. Consumer proposals do not have interest payments, other loans do. If you take out a new loan, you’re going to end up paying more with the interest tacked on.
- More Debt. Your consumer proposal freed you of debt. By taking out a new loan, you’re getting into debt again. This is an added financial risk that some consumers may not want to take on.
- Consumer Proposal on Credit Report. Even though you’ve paid off your consumer proposal, it will still remain on your credit report for three years from the date of your final payment.
- Security. Many consumer proposal loans may require the use of security. If you default on the loan, you risk losing the security you provided.
What happens to my debt when I file a consumer proposal? Click here to find out.
How to Pay Off Your Consumer Proposal Early Without a Loan
If taking out more debt to pay off your consumer proposal isn’t a good option for you, there are alternate ways you can pay off your consumer proposal early. You may have to work a little harder to pay down the consumer proposal quickly, but it is definitely worth it to be free of the obligation.
- Increase your payment frequency. Instead of making monthly payments, make weekly or bi-weekly payments. Budgeting will be easier this way, particularly if you align payments with your pay cheque schedule, and you’ll be able to complete your payments quicker.
- Increase your payment amount. If you can afford it, increase the amount you pay each period. This way you’ll be paying the balance down faster.
- Lump sum payment. Every now and then people get some extra money, whether it’s from a bonus, tax return, or gift. You can use that extra money to make a lump sum payment towards your consumer proposal.
For a more in-depth look at paying off your proposal early, check out this article.
The Cost of Interest vs. Credit Health
The two major factors involved in deciding whether a consumer proposal loan is right for you are the interest cost and credit health. On the one hand, following through with the consumer proposal means you don’t need to make interest payments but your consumer proposal will appear on your credit report longer. On the other hand, paying off your consumer proposal with a loan means you need to make costly interest payments but you’ll get a head start on rebuilding your credit.
For some, saving money on interest is more important than having good credit. For others, credit health is more crucial than the cost of financing. The only way you can decide whether or not to use a loan to pay off your consumer proposal is by considering your current financial position and future financial goals. Every individual is unique, you need to make a decision that suits your circumstances.
What Happens When You Can’t Afford Your Consumer Proposal
If possible, you should reach out to your Licensed Insolvency Trustee ahead of time, before you miss a payment. If you know you’re going to miss a payment, it may be possible to amend your consumer proposal or receive additional advice from your Trustee on how to handle your finances. In addition, some consumer proposals allow delays in payments, your Trustee can indicate whether this is true for you or not. There is one catch associated with amending a consumer proposal. Lenders don’t have to accept an amendment which means that the entire proposal could be cancelled should they decline the amendment.
Check out this article for more information about amending a consumer proposal.
Generally, missing a consumer proposal payment is not good given that you’re already in a tough financial situation. That being said, you will only run into serious trouble when you miss three consecutive monthly payments. At this point, your consumer proposal will be annulled which is a fancy way of saying that your proposal is no longer in effect. If your consumer proposal is annulled, protection from creditors is no longer applicable for you.
Reviving Your Consumer Proposal
Your consumer proposal can be revived by contacting your Trustee, just keep in mind that it’s not always possible. If you miss three payments, your first step is to contact your Trustee, if they aren’t in contact with you already. Keep in mind that if your consumer proposal is revived, you will need to get up to date with payments.
If all else fails with your consumer proposal payments and you can no longer afford to make them, you can file for bankruptcy. Bankruptcies are similar to consumer proposals in a lot of ways but are usually considered to be the more serious and aversive solution. Becoming debt free should be a priority of yours, and for some, bankruptcy is the best option. In conjunction with filing for bankruptcy, you should consider attending credit counselling sessions to learn more about personal finance and how to effectively manage money for future success.
Paying Off Your Consumer Proposal
The fact that you’re eager to pay off your consumer proposal and get a fresh start on rebuilding your credit and finances is superb. However, you need to make sure that you’re making financial decisions today that will better your financial position in the future. For some, using a loan to pay off a consumer proposal will work because they can afford the high interest and want to rebuild credit right away. For others, the affordability of consumer proposal payments works best and rebuilding credit is not a priority. It all depends on your current financial position and future goals.