Can I Get a Loan While in A Consumer Proposal?

Filing and working towards completing a consumer proposal can feel like both a relief and a restriction. You are actively tackling debt and gaining financial stability, but we all know life does not exactly wait for our finances to settle.

Imagine this: you are responsibly making your consumer proposal payments, and suddenly an expense pops up. Maybe your car just broke down, or your fridge calls it quits, or perhaps there is a surprise vet bill. Can you get a loan while in a consumer proposal to cover these types of costs?

The answer is, technically, yes! But it is not the most straightforward thing in the world.

Securing a loan during a consumer proposal means facing some challenges, knowing your options, and boosting your chances however you can.

Introduction to Consumer Proposals: Your Path to Financial Breathing Room

If your debt has piled up, a consumer proposal can be a game-changer. In Canada, a consumer proposal is like hitting “reset” on your finances. You work out a deal with creditors to repay a portion of what you owe—just enough to be manageable. This arrangement is legally binding, and a Licensed Insolvency Trustee oversees the whole process, making sure everything is above board.

It is a structured way to knock out debt without filing for bankruptcy. Plus, instead of juggling multiple payments and interest, you get one simple monthly payment to handle.

So, What Exactly Is a Consumer Proposal?

In a nutshell, a consumer proposal is like a truce between you and your creditors. You agree to pay a reasonable portion of what you owe, usually through fixed monthly payments, while the rest is forgiven. Since it is a formal agreement, it does impact your credit rating. But here is the upside: you are on a path to financial stability, with breathing room to handle your debt responsibly.

Loan Options During a Consumer Proposal

If you are considering taking a loan while in a consumer proposal, it is important to note that it cannot be included in the existing consumer proposal. Therefore, you should make sure that you can afford your consumer proposal payments and the new loan that you are looking to take on.

If you know you can take on a loan without too much financial setback, let’s talk options. Getting a loan while in a consumer proposal can be tricky, but there are a few routes that may work.

Types of Loans You May Qualify For

• Secured Loans: These loans are tied to assets, like a car or home. Because the loan is backed by something of value, lenders are more likely to approve it, even if your credit is less than ideal. But remember, if you fail to make payments, the asset backing the loan is at risk.
• Secured Credit Cards: If traditional credit cards are out of reach, a secured credit card could be a great choice. These work a little differently: you put down a deposit that acts as your credit limit. Using one of these cards responsibly can help build up your credit score over time, so you are handling expenses and boosting your credit.
• Personal Loans from Specialized Lenders: Certain lenders specialize in loans for individuals going through a consumer proposal. They will often offer higher-interest loans, which reflects the risk they are taking, but it is an option to consider if you are in a pinch.

Eligibility for Loans While in a Consumer Proposal: What Are Lenders Looking For?

Unfortunately, getting a loan while in a consumer proposal is not a walk in the park. It is not just about finding a lender who is willing—it is about meeting their criteria. Here is what lenders typically zoom in on when deciding whether to approve your application:

Key Factors Lenders Consider

• Credit Score: The proposal itself impacts your score, and lenders know that. But here is the thing: while your credit score does take a hit, lenders will also see that you are actively working on your debt. A higher score still helps, but lenders in this situation are often looking for signs of responsible financial behaviour, not perfection.
• Steady Income: Think of steady income as your golden ticket. Lenders want to know you are bringing in money regularly, so you can make those monthly payments without a hitch. If you have a stable job or consistent income, that is a big thumbs-up from the lender’s perspective. They will see you as a safer bet.

Challenges of Getting a Loan While in a Consumer Proposal

Securing a loan during a consumer proposal is not always a breeze. Here is where things get a bit tricky:

Impact on Your Credit Score

Let’s get real: a consumer proposal impacts your credit score and stays on your credit report for up to three years after it is paid off. This can make some lenders wary. But it is not a dealbreaker—especially if you are working with lenders who understand consumer proposals. And by keeping up with your proposal payments, you are gradually building a positive payment history, which helps.

Tips for Boosting Your Loan Approval Chances

So, what can you do to improve your odds? Here are some tips to help you out:

• Have a Stable Income: If you are employed, keep it consistent. Lenders love reliability, and a steady income shows you can manage loan payments.
• Be Smart with Your Loan Request: Stick to the amount you genuinely need, and do not go overboard. A smaller loan is more likely to be approved, and it is easier to handle on top of your proposal payments.
• Build Positive Payment History: If you are already making regular payments on your consumer proposal, that is a good sign to lenders. They like to see that you are keeping up with your financial commitments. Keep up with your payments on any current accounts or secured credit cards, as this can also show lenders you are reliable and actively working to improve your financial situation. A positive payment history can make a big difference in demonstrating your creditworthiness!

Navigating Loans During a Consumer Proposal: A Quick Recap

So, yes—you can get a loan while in a consumer proposal, but it is all about being strategic. Start by exploring loan types that work with your current financial situation, focus on options like secured credit cards or specialized lenders, and remember that every on-time payment helps rebuild your credit.

Seeking Professional Advice

Before diving into a loan, it is a good idea to speak with your Licensed Insolvency Trustee. They can help you understand your proposal’s terms and guide you on any borrowing limits you might not know about. Plus, their advice can be invaluable for navigating your options and making smart decisions in the long run.

Smart Moves to Make While in a Consumer Proposal

While it can feel like a consumer proposal limits your options, it is a tool that can help you regain control. One tip: If you are managing expenses on a low income, consider exploring strategies that help you stretch your budget further.

Being mindful of spending, finding ways to avoid overspending, and working on your credit score can help you make sure your financial foundation is stronger after the proposal is over.

In short, getting a loan during a consumer proposal is not impossible, but it is a bit like walking a tightrope. With some careful planning, a steady income, and the right type of loan, you can get through an emergency expense without derailing the hard work you have put into your consumer proposal.

How Farber Can Help You Make Smart Financial Choices

Navigating debt and understanding your options in a consumer proposal can feel overwhelming, but you do not have to do it alone.

At Farber, we specialize in helping Canadians find relief from debt through practical and manageable solutions. From walking you through the consumer proposal process to helping you decide if a consumer proposal—or, if instead, filing for bankruptcy—is the right path, we are here to support your journey.

If you need guidance tailored to your situation, do not hesitate to reach out. Book a free consultation with us today and let our team of experts help you make the choices that are right for you.