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Can You Get a Loan While in a Consumer Proposal?

Written by Jessica Steer
Dealing with too much debt can be difficult, and sometimes, it gets so overwhelming that you have no other than to turn to an alternative method to improve your financial health. In many cases, people choose to deal with their debt and become debt-free by getting a consumer proposal.
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    Unfortunately, though, getting a consumer proposal can take a hit on your credit score. It can also make it difficult to get a personal loan for financial emergencies. That doesn’t mean it’s impossible, though. It’s still very possible to get a loan while in a consumer proposal; it just may not be with the conventional method of getting a loan and may affect your loan amount.

    Loans and Consumer Proposals

    When it comes to consumer proposals, it can be a bit more challenging to get a personal loan. This is because consumer proposals take a hit to your credit score. It also shows a negative trend in your credit report. Unfortunately, if the negative outweighs the positive, it can be difficult for lenders to see past it. 

    When it comes to personal loans, the banks may not say yes. For this reason, it’s a good idea to look into alternatives like private and online lenders. These lenders may have higher interest rates than the bank, but they offer you a way to get the financing you need while improving your credit score and creating a new positive trend. These lenders often cater to high-risk and vulnerable borrowers, so approval is often relatively fast. 

    Many lenders that offer alternative financing to traditional lenders offer you funds right from the comfort of your home. That said, though, before you fill out your loan application, you do want to be sure that you’re dealing with a reputable lender. Once you have thought, you can receive a loan quote and then decide if it’s the right loan for you. 

    Easiest Types of Loans to Get

    While it’s possible to get an installment loan in a consumer proposal, it’s easier to get a secured loan. What is a secured loan? Well, it’s a type of loan that requires an asset as collateral. There are many types of secured loans.

    • Car loans
    • Home equity loans
    • Home equity lines of credit
    • Secured credit cards

    The great thing about these loans is that they also help to rebuild credit. Even though there is an asset involved, lenders report all positive payments to the credit bureaus. 

    Car Loans

    Getting a vehicle loan is relatively easy. Because the vehicle can be used as collateral for the loan, it’s less risky for the lender to give you the funds. That said, having a consumer proposal on your credit report can impact your interest rate. 

    The interest rate the bank gives you for a car loan is different for everyone. In Canada, the average interest rate for a car loan is between 7% and 8%. That said, the interest rates can go as high as 20%, depending on your credit score. Don’t worry, though. Once you’ve established a good payment history, you can refinance your car loan to a lower interest rate. 

    Home Equity Loans

    Depending on your financial situation and if you own your home, you can borrow money from your equity, even if you’re in a consumer proposal. In Canada, home equity loans are when you take out a loan based on the equity in your home. Depending on whether or not you get a home equity loan or line of credit, you can borrow up to 80% of the equity in your home minus what you owe on your mortgage. 

    While you don’t need perfect credit in order to qualify for a home equity loan, it does affect your interest rate. Your interest rate can range dramatically, but as long as you own your home, have steady employment and provide the required financial information, including your net worth, you’re likely to get approved for some funds. However, the better your credit score, the lower the interest rate and the more funds you could be approved for. 

    Secured Credit Cards

    Secured credit cards are similar to traditional credit cards except for the fact that a deposit is required for approval. Most secured credit cards have guaranteed approval as long as the deposit is paid. How much you have to pay as a deposit on the secured credit card depends on the approval amount and what the lender requires as a deposit. No matter what you get approved for, though, using a secured credit card can help you build credit faster as long as you use it properly.

    With a secured credit card, you can spend and pay like normal. Each secured card has a different interest rate and a monthly due date. Interest rates on secured cards work the same as traditional cards, so you can still get into credit card debt. Really, the only difference from a traditional credit card is the deposit. This deposit is made upon approval and returned to you once the card has been paid off in full and cancelled. Any administrative fees that were required, though, will not be returned. 

    Consumer Proposals and Your Credit

    While consumer proposals don’t have as large of an impact on your credit report as bankruptcy, they still have a negative impact. Once you’ve gotten a consumer proposal, it’ll be listed on your credit report. Those who check your credit report will be able to see the date the proposal was filed, when it will be completed and what’s included in the proposal. 

    Before we talk too much about your credit report, let’s talk about what a consumer proposal is. Essentially, a consumer proposal is when you make a deal with your creditors to consolidate your debt into one monthly payment. When this deal is made, your debts are often reduced, which can be scary for potential lenders. 

    Once a consumer proposal has been added to your credit report, it will have a negative impact on your credit report. It won’t just impact your credit score either. It’ll bring your credit report to an R7 status, which is the third lowest rating below an R8 (asset repossession) and R9 (bankruptcy). While it’s not as bad as bankruptcy, you do want to complete it on time by making responsible consumer proposal payments. 

    Once you have a consumer proposal and an impact has been made on your report, how do you combat it? Well, the best bet to combat a poor credit rating is to make all of your monthly payments on time. While you can get new credit accounts while in a consumer proposal, it isn’t recommended. Whether you do or you don’t, though, making on-time loan payments is a must. 

    Once a consumer proposal is on your credit report, it stays there for a certain period of time. It will say on your report three years after the date of completion or 6 years after the start date of the consumer proposal. Which one depends on whichever date comes sooner. 

    Paying Off Your Consumer Proposal Early

    Just like with any other debt, you can pay off your consumer proposal early. The time you’re given to pay off your consumer proposal is the maximum amount of time you can take to pay off the proposal. If, at any point, you want to make extra consumer proposal payments or pay off your proposal in full, you can. You can even choose to do this with a personal loan, even though it may end up costing more money in the long run. The main reason people choose to do this is because of how a consumer proposal affects your credit rating. The sooner it’s paid off, the sooner it will drop off your credit report. 

    Student Loans and Consumer Proposals

    Just like other forms of debt, student loans can be included in a consumer proposal. It doesn’t matter if they’re federal student loans, provincial student loans, or loans through your financial institution or a private lender. No matter what type of loan you have or any other similar debt-related issues, they can be included in a consumer proposal. 

    With a consumer proposal, your licensed insolvency trustee, also referred to as your licensed consumer proposal administrator, will contact your student loan lender and arrange how you’re going to pay off the student loan and what amount you’re going to pay. Depending on the student loan you have, though, before going to licensed insolvency trustees, you can make a repayment plan that works for both you and the lender. This is the ideal option if a student loan makes up the majority of your debt.

    Another thing to consider regarding student loans and consumer proposals is if you’re able to get a student loan with a consumer proposal. You might be surprised to learn that you can. That said, it does depend on what’s included in your consumer proposal and where your credit sits. If you’re looking into federal and provincial student loans, your income is considered more than if you have good credit or bad credit. That said, you can’t be in a consumer proposal or arrears with another student loan. If you are, then you won’t be approved. When it comes to other types of student loans, your best option is to use an alternative lender. Their interest rates may be higher, but you have a greater chance of approval. 

    Where Can You get Help?

    Are you looking for a loan and in a consumer proposal? Don’t stress, Spring Financial can help. We offer personal loans ranging from $500 to $35,000 for all credit scores. Our rates start as low as 9.99%, and you can receive the funds you need as soon as today. 

    Traditional Banks and Consumer Proposals

    When it comes to consumer proposals, many traditional financial institutions will accept them. This is because they’re still getting a portion of their money without having to get collections agencies involved. They’ll receive less money than if the funds were paid back in full by the borrower but more than if they took the borrower to collections. 

    The difficult part of collections, though, is it’s difficult for borrowers to be approved for funds through traditional banks. Most traditional banks won’t approve you for a loan if you’re in a consumer proposal and/or have bad credit, especially if it’s with their bank. That said, there are always exceptions. It’s easier to get approved for a personal loan with an alternative lender, though. There may be a higher interest rate, but approval will get you the funds you need while improving your credit score. You’ll also be able to refinance once you’ve held the loan for a while and establish some positive credit history. 

    Final Thoughts

    When it comes to debt that’s out of control, it’s best to try to avoid bankruptcy if you can. One way to do this while improving your financial security is to go through a consumer proposal. You’ll meet with a licensed trustee, and they’ll make arrangements with your lenders for lower amounts and payments to help you get your finances back on track. That said, even while you’re in a consumer proposal, you may need to apply for a loan for varying reasons. If this is the case, it can be more difficult. You’ll likely have to go through an alternative lender to get the funds you need and it’s often not recommended. Unfortunately, things happen, though, and you may need access to funds for daily expenses. If this is the case, at Spring Financial, we can help. 

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