Loans after a Consumer Proposal in Canada
As we overextend ourselves with credit, debt and insolvency are becoming the new reality. When a person finds themselves with an unmanageable debt load, consumer proposals are often a more desirable option than going bankrupt because they demonstrate that you are trying to manage your debts and meet your responsibilities.
With a consumer proposal, a bankruptcy trustee sets up an agreement between you and your creditors for repayment of part of, or all of what you owe and more time to pay it off, or in some cases, both. It also works in the creditors favour because more often than not, they get back more money than they would have if you filed for bankruptcy.
How Will a Consumer Proposal Impact My Credit Report
Consumer proposals do have a negative impact on your credit report. However, if you are at a point where you need to take this option, chances are you already have really bad credit score in the first place. When you are completing a consumer proposal your credit report will reflect it with an R7 rating. After you have completed a consumer proposal, a note remains on your credit report for three years. This will significantly impact your ability to get a loan during that time period.
What if I Need a Loan?
As you struggle to meet your financial obligations to pay off the proposal, you might find yourself in a position where you really need some extra money or an opportunity to rebuild your credit score. Just remember, the point of going through the consumer proposal was to get out of debt, so don’t to take on a bigger debt load than you can handle.
Can I Get a Loan from a Bank?
After a consumer proposal, re-establishing your credit through a bank is difficult, if not impossible. Even though filing for a consumer proposal is a more responsible option than filing for bankruptcy, banks look at it the same way as they would a bankruptcy, an inability to manage money wisely. They don’t like to take bad risks.
When you’re completing a consumer proposal, banks won’t even consider lending you money because you’re still under the proposal. Often, they will make you wait for a considerable amount of time, usually two years, after being discharged before they will even consider you for a loan.
Although this seems harsh, banks have a good reason for avoiding dealing with people who are going through or who have been recently discharged from consumer proposals. Often part way through the consumer proposal, people stop making their payments and wind up declaring bankruptcy (take a look at this comparison of bankruptcy and consumer proposals).
How Can I Get a Loan after Consumer Proposal?
It is difficult to get a loan anywhere when you can’t pass a credit check. However, there are a lot of private lenders who will give you a loan after consumer proposal. Although the interest rates are high, you don’t have many options, so these private lenders are your best bet.
However, just because you have a down payment or are willing to pay high interest rates doesn’t guarantee that you will get a loan from a private lender. These private lenders have certain criteria that they expect you to meet in order to qualify for their loans. In order to qualify you typically need:
- A job and a verifiable income. If you don’t have either, you will be hard pressed to find anyone willing to lend you money.
- A low debt-to-income ratio. If you owe more money than you have coming in, you’re not a good risk.
- Proof that you are making your proposal payments. You need to show them that you are making these payments on time every single month.
If you do get a loan through a private lender, make sure you make your payments regularly and don’t fall back into old habits. The goal is to rebuild your credit, not wind up right back where you started. Regardless of whether you get a loan, now is a really good time to set up a budget and cut back on some of your expenses, so that you can pay off your consumer proposal faster and get a head start at your financial future.
Want more information? Check out our post on the advantages and disadvantages of a consumer proposal.