Can You Get a Car Loan While in a Consumer Proposal?

A consumer proposal allows you to clear your debts and begin rebuilding your credit at a faster rate than you were able to before.

The good news is it is possible to be approved for a car loan during or after a consumer proposal.

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

A car loan is one of the best ways to build credit, so many financing options are tailored for people looking to rebuild their credit after a consumer proposal.

Here are some tricks to getting a car loan with a consumer proposal.

1. Find the best lender

Car ownership is vital for many Canadians for employment purposes, and the good news is there are tailored car loans for people in a consumer proposal.

A car loan requires a steady job and stable income to get approved, especially if you have bad credit. This is because lenders want to be confident that you can make the loan payments.

When applying for a consumer proposal car loan, lenders look at the following to determine whether or not you will be approved:

• Credit history
• Employment
• Debt-to-income ratio
• Savings and any assets
• Secured debts, like a mortgage
• Your consumer proposal agreement.

They will also want to contact your Licensed Insolvency Trustee to ensure you have made your consumer proposal payments on time.

Prime lenders like banks are wary of offering loans to people with poor credit (under 650), so you may be limited to private or subprime lenders. Because of this, some will look to apply stricter terms or higher interest rates.

When buying a car, pay particular attention to the interest rate. Research lenders thoroughly and look for low rates. Don’t be pressured into a high-interest loan that could cause further financial hardship or leave you unable to make your consumer proposal payments.

You might also want to consider using an auto broker. They work with car dealerships and private lenders to find loans for people rebuilding their credit.

Lastly, ensure the lender is legitimate: always read reviews to ensure the company is reputable.

2. Improve your credit history

A consumer proposal negatively affects your credit score, and an R7 is applied to your credit report for the debts included in your proposal. It stays on your credit report for at least three years, which makes it harder to get car financing.

Improving your credit is one sure way to increase the likelihood of being accepted for an auto loan.

Check your credit report regularly to monitor what’s being recorded and learn how to improve your credit score.

As lenders look at your recent payment history on your credit report, add affordable new lines of credit (a secured credit card is a quick win) and make payments on time to increase your credit score.

3. Reduce your credit utilization ratio

Your credit utilization ratio is the total credit available on all your financial products. This is the second most influential factor in your credit score calculation.

For example, if you have a credit card with a $1,000 limit and have used $600, your credit utilization is 60%.

To ensure your credit utilization ratio isn’t too high, keep your borrowing ratio to less than 30% of your available credit.

If you keep your balances low, your credit score will rise, and you will be more likely to be accepted for auto finance.

4. Supply your paperwork

Lenders want to know that you can comfortably afford a car loan and want assurances that you are repaying your debts through your consumer proposal.

So, to streamline this process, ensure you have all the paperwork related to your proposal.

If you have completed your consumer proposal, ensure you have a copy of your Certificate of Full Performance and provide this to the lender.

By sending your certificate to Equifax and TransUnion, you can ensure that you are discharged from your debts. You might even see a slight improvement in your credit score.

Car loan after consumer proposal discharge

It’s easier to get a car loan when you’ve successfully fulfilled the terms of the consumer proposal. When this happens, it will be easier to access various credit products, including car loans.

Your Certificate of Full Performance is proof that you completed your consumer proposal, so make sure you supply a copy to the lender.

Wrapping up

You can get a car loan while in a consumer proposal under certain conditions, even if you have bad credit.

If you have consumer proposal questions, connect with a Licensed Insolvency Trustee below.

Share this article