Yes, you can get a car loan during a consumer proposal
A consumer proposal is often easier to finance than people expect. You've made a deal with your creditors and you're paying it, which tells a lender you deal with debt instead of walking away from it. Lenders that specialize in rebuilding credit do finance people who are still in a proposal, and more lenders will once it's paid off.
The rate will be higher than for someone with clean credit, at least at first. The goal is a loan you can comfortably afford, paid on time, so you can refinance to a better rate later.
What lenders look for while you're in a proposal
- Your proposal is in good standing. Payments made on time, with no missed months. A few months of steady payments helps; a year helps more.
- The payments fit together. Your proposal payment plus the car payment has to fit your income with room left over.
- Steady income you can show. Recent pay stubs, or tax returns and bank statements if you're self-employed.
- A sensible vehicle. A reliable used vehicle at a modest price gets approved far more often than a new truck.
- A down payment if you have one. Even $500 to $1,000 shows commitment and lowers the payment.
Some lenders also ask for a letter or statement from your Licensed Insolvency Trustee showing your proposal status. It's quick to get, so ask your trustee for one when you start shopping.
During the proposal or after it's paid off?
| During the proposal | After it's paid off | |
|---|---|---|
| Who will lend | Lenders that specialize in rebuilding credit | More lenders, including some mainstream ones over time |
| Typical rate | Higher | Lower, and falling as your credit rebuilds |
| What helps most | On-time proposal payments | Your certificate of full performance and new on-time credit |
If you can wait a few months and the car can last, waiting until the proposal is paid off usually gets a better rate. If you need a vehicle to get to work now, financing during the proposal is a reasonable step, as long as the payment is one you can keep up with.
How long a consumer proposal stays on your credit report
Equifax and TransUnion remove a consumer proposal 3 years after you've paid it off, or 6 years after you signed it, whichever comes first. Paying it off early can bring that date forward.
A car loan paid on time during that period is one of the best ways to rebuild. Most car lenders report to Equifax, TransUnion or both, so every on-time payment adds to your new history.
Using the car loan to rebuild
- Keep the payment comfortable, even if that means a cheaper vehicle.
- Set up automatic payments so you never miss one.
- Check your Equifax and TransUnion reports for free after six months to make sure the loan shows up correctly.
- After about 12 months of on-time payments, look at refinancing to a lower rate. In Saskatchewan there's no penalty for paying the old loan off early.
Watch for these
- Upfront fees. A legitimate lender doesn't charge you to apply. Be careful with anyone who wants money before you have a loan.
- Add-ons you didn't ask for. Warranties, rust protection and payment insurance can add thousands to the loan. Ask what each one costs and say no to what you don't want.
- Very long terms on older vehicles. An 84-month loan on a 10-year-old car means you'll owe more than it's worth for most of the loan.
- Rates near the legal limit. The maximum on most consumer loans in Canada is 35% a year, including fees. If you're offered something close to it, ask what else is available.
How Brenden helps
Tell Brenden where you are in your proposal and what you need the vehicle for. He'll point you to lenders that finance proposals, tell you what payment range is realistic, and make sure you get the lender's written disclosure of the rate and total cost before you sign anything. Your information is only shared with your permission.
Sources: credit report timelines from the Financial Consumer Agency of Canada; the 35% limit from FCAC.