Paying Off A Consumer Proposal With A Loan

Paying Off A Consumer Proposal With A Loan

Written by Veronica Ott
Fact-checked by Caitlin Wood
Last Updated August 4, 2022

If you’re currently working your way through a consumer proposal, you may be wondering if you can pay off your consumer proposal early so you can start rebuilding your credit. While you can increase your payment amounts or payment frequency, you can also use a loan to pay off your consumer proposal early. That way you can recover your credit faster from the damage your consumer proposal had on your credit.

Can You Use A Loan To Pay Off  Your Consumer Proposal?

In short, yes, there are loans that are specifically designed to help you pay off your consumer proposal early. However, these loans typically come with higher interest rates, some of which are as high as 40%.  

Using a loan to pay off your consumer proposal can still be 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 handle the payments responsibly. 

Where Can You Get A Loan To Pay Off A Consumer Proposal

Most consumers won’t be able to pay off their consumer proposal with a personal loan, as they likely won’t be able to access enough money or get approved at all. But, there are a few specialized options that those looking to exit their consumer proposals sooner than expected should consider. 

Marble Fast-Track Loan

Marble Financial’s Fast Track Loan is a consumer proposal pay-off loan. Marble works with your trustee to pay off your consumer proposal immediately, after which you’ll make loan payments directly to Marble. The ultimate goal of the Fast-Track loan is to start work toward improving your credit right away, instead of waiting until you complete your consumer proposal payments. 

AmountInterest RateTermFees
Marble Logo$2,500 – $500019.44% – 31.90%34 to 84 months– Admin fees
– Legal fees
– Optional Loan Protection Plan Coverage
Marble Financial
Want to pay off your consumer proposal and start building credit faster?

Use Your Home Equity 

You may also be able to access a home equity loan or line of credit (HELOC) to pay off your consumer proposal early. In this case, you’ll need to own your home and have built up at least 20% equity. You can only borrow 65% of the value of your home for HELOCs and 80% for home equity loans. It’s important to keep in mind that because you’re currently in a consumer proposal, you will likely only be able to access a smaller portion of home equity. 

Once approved for either a HELOC or home equity loan, you’ll then work with your trustee to pay off your consumer proposal and start making your loan payments. 

AmountInterest RateTermFees
Home Equity Loan
Home Equity Line Of Credit
65% – 80% of the value of homeFixed or variable6 months to 10 years– Legal fees
– Admin fees
– Home appraisal fees
– Title search fees

How To Get A Loan To Pay Off A Consumer Proposal?

In order to qualify for a loan to pay off your consumer proposal early, you’ll need to meet a few requirements. 

  • You’ll need to be a citizen or resident of Canada
  • You’ll need to have a stable income that is high enough to cover the loan payments

Documents Required To Get A Consumer Proposal Loan

Documents To Verify Personal Details – Your lender will require one to two pieces of ID (a Government Issued Photo ID) to verify your identity and address. You may also provide a utility or cell phone bill as proof of address. 

Documents To Verify Income – To verify your income and job stability your lender may request a letter of employment, pay stubs and/or a bank statement

Documents About Your Consumer Proposal – Your lender may also request certain information about your consumer proposals such as your payment schedule or payout letter.

Advantages And Disadvantages Of A Consumer Proposal Loan

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.

Advantages Of A Consumer Proposal Loan

  • Start Rebuilding Credit Sooner. Once you’ve paid off your consumer proposal, you can start rebuilding your credit right away. Lenders generally report the payments you make on the consumer proposal loan to the credit bureau(s), which can help build your credit.
  • Stays On Credit Report For A Shorter Time – A consumer proposal is removed from your credit report 3 years after you paid the consumer proposal or 6 years after being filed. By paying off the consumer proposal sooner, you’ll be able to shorten the length of time the consumer proposal is on your credit report.
  • 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.

Disadvantages Consumer Proposal Loan

  • 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. Taking out a loan to pay off your consumer proposal means you’ll be taking on more debt. This is an added financial risk that some consumers may not want to take on.
  • Limited Loan Amounts – Depending on how much the lender offer and your consumer proposal amount, you may not be able to cover the entire consumer proposal with the loan.

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 a loan 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.

What Should You Do If 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.

What Happens If You Miss A Consumer Proposal Payment? 

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 automatically 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 to you and penalties and interest could be reinstated.

Can You Revive Your Consumer Proposal After An Annulment?

Your consumer proposal can be revived by contacting your Trustee within 30 days of the annulment. If you miss the 30-day mark, you’ll have to go to court. 

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. 

What Can You Do If you Can’t Afford or Revive Your Consumer Proposal? 

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.

Should You Use A Loan To Pay Off Your Consumer Proposal

Whether you should use a loan to pay off your consumer early depends on your goals and your current financial standing. 

  • Use A Loan To Pay Off Your Consumer Proposal If – If you want to start rebuilding your credit right away and you can afford the high interest rates that come with a consumer proposal loan, then this may be the right option for you. 
  • Don’t Use A Loan To Pay Off Your Consumer Proposal If  –  If you don’t mind waiting until the consumer proposal is paid off to begin building credit. You also should avoid using a consumer proposal loan if it isn’t big enough to cover the entirety of your consumer proposal amount. 

The Cost Of Interest vs. Credit Health

Another factor to consider when deciding whether a consumer proposal loan is right for you are the interest cost and credit health. You should consider whether the improvement in your credit is worth the interest you’d pay on a consumer proposal loan.

  • 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.
  • Paying off your consumer proposal with a loan – means you need to make interest payments but you’ll get a head start on rebuilding your credit.

FAQs Loan To Pay Off Consumer Proposal

How long does it take to pay off a consumer proposal?

The time it takes to complete a consumer proposal depends on your financial capability and the total debt you need to repay. However, in general, a consumer proposal can last anywhere between 1 to 5 years (max time you can be in a consumer proposal). 

Can I pay off my consumer proposal early? 

Yes, you can pay off your consumer proposal early. You can make lump sum payments or increase the payment frequency to help you pay it off faster. You can also get a consumer proposal loan to pay off your consumer proposal early. 

Can I get a car loan while in a consumer proposal? 

Yes, you can get a car loan even while you’re in a consumer proposal. However, finding a lender who’s willing to lend to you can be difficult and expensive. Since you’re in a consumer proposal, you’ll be considered a high-risk borrower which will lead to high-interest rates and fees.  

Bottom Line

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.

Rating of 5/5 based on 13 votes.

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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