Getting a car loan in Canada while currently in or coming out of a consumer proposal is possible if you apply through a private lender, show your proof of consumer proposal documents and can ensure that your debt-to-income ratio is low.
Filing for a consumer proposal is a debt-relief option for those that have debt exceeding $250,000. Unlike bankruptcy, when a person is unable to make any payments to creditors, consumer proposals are an offer to creditors that state you will either pay back a percentage of the debt or extend the payback period, which can be up to five years. A legally binding process, consumer proposals are viewed as a more responsible option compared to filing for bankruptcy, as the debtor is required to pay a lump sum of money over a period of payments and is also required to attend financial counselling sessions. Akin to bankruptcy, when you’ve been approved for a consumer proposal, your credit score might plummet. However, before a person files for a consumer proposal, chances are their credit wasn’t the greatest to begin with. Luckily, consumer proposals are a second chance for you to get your finances back on track, which could influence the state of your credit score in the future.
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Getting approved for a new loan while going through a consumer proposal is a difficult task, as it’s reflected on credit reports with an R7 status. Once a consumer proposal is completed, this rating can stay on your report for up to three years. The idea of a consumer proposal is to help you get your finances back on track, so applying for new credit might only reflect poorly on your credit report. Not to mention, the additional debt on top of making payments to the Licensed Insolvency Trustee (LIT) – the financial advisor who acts as the middleman between your creditors and you during a consumer proposal – could be unbearable. The good news is that it’s not impossible to get approved for a car loan if you’re currently in or coming out of a consumer proposal. Your life doesn’t stop when you’re in a consumer proposal, you’re still required to pay bills and make financial decisions. This being said, applying for a car loan while going through any kind of debt-relief isn’t unheard of. Here are three tricks to getting a new car loan with an R7 on your file.
1. Apply with a Private Lender
For a lot of Canadians, having reliable transportation is vital to being able to get to work and ultimately stay employed. Any implications to your credit report by a consumer proposal might cause some worry, however it by no means destroys your chances of getting approved for vehicle financing. Getting approved for an auto loan while you’re currently in or coming out of a consumer proposal will depend on your personal ability to pay back the lenders. Unfortunately, banks don’t always factor in financial maturity when deciding the approval rate for a person with a consumer proposal on their credit report. Thankfully, many private lenders allow customers who have taken on all kinds of debt-relief obtain affordable auto financing. There will typically be stricter guidelines, however getting approved with a private lender is more likely than a major financial institution.
Canada Drives can get you approved for an auto loan with great rates regardless of your credit score. Thanks to over a decade of working with car dealerships all across Canada, we’ve been able to partner with private lenders who specialize in working with Canadians who have less than perfect credit. Click here to apply with us today.
2. Show Your Proof of Proposal Payments
When coming out of a consumer proposal, the best thing you can do is prove to lenders that you’ve successfully completed the program and are financially ready to apply for a new loan. Ensure that you show them all copies associated with the consumer proposal – the certificate of completion and all related documents. Although lenders will be able to see the R7 on your credit report, providing supporting documents will prove to them that you managed to comply with previous lenders and can work hard to get your loans paid down in full each month. It’s also a good idea to send all consumer proposal documents to the two major credit bureaus in Canada – Transunion and Equifax, so that they can update your credit report.
3. Ensure Your Debt-to-Income is Low
When you apply for a new loan while in a consumer proposal, or freshly out of one, it’s important that your debt-to-income is low. Otherwise, lenders will see you as a risk when you apply. A good option for those who are applying for a loan in a consumer proposal is to find a cosigner – this will lessen the risk to lenders and will also provide a backup plan if you’re ever stuck in a situation where you can’t repay your car loan.
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Before entering into a consumer proposal, it is important to determine that it is the right choice for you. In order to effectively resolve your debt, you must have a stable income to make monthly payments and pay the associated fees. If you miss more than two of your consumer proposal payments, it may be necessary to file for bankruptcy. While a consumer proposal is a great opportunity for many, it is not always right for everyone so be sure to do the proper research to ensure you are making the right choice! If you need a vehicle and have no or low credit, visit Canada Drives today to see how we can help you get approved for affordable auto financing!