Taking a Loan While in Consumer Proposal

Making a consumer proposal is a popular option to avoid filing for bankruptcy and to become debt free. When you find yourself in a difficult financial situation, it can be the key to financial stability. This process helps to reduce the total amount of debt and establish a realistic payment plan.

During a consumer proposal, it can become difficult to manage a tight budget. That’s when many people wonder whether borrowing is an option.

Understanding the Consumer Proposal

A consumer proposal is a legal agreement between an indebted person and his or her creditors. A licensed insolvency trustee (formerly a trustee in bankruptcy) prepares and files the proposal with the Office of the Superintendent of Bankruptcy. The trustee is also responsible for presenting the proposal to the creditors.

The purpose of the proposal is to reduce debt and offer financial relief by spreading payments over a set period. When the proposal is accepted by the creditors, it replaces existing payment arrangements. The debtor is then required to make the monthly payments set out in the proposal.

Can I Get a Loan During a Consumer Proposal?

Although it is possible to obtain a line of credit during a consumer proposal, it is still extremely difficult. This process has a major impact on your credit rating. In effect, it classifies you as a high-risk borrower in the eyes of lenders. As a result, your ability to obtain a loan is compromised.

What are the Risks of Borrowing During a Consumer Proposal?

Refusal of Credit Application

A proposal indicates a history of financial difficulties in the credit report. It’s possible that financial institutions will turn down your application for credit, because they feel you present an increased risk. As a general rule, your chances of obtaining a personal loan, even under strict conditions, are considerably reduced.

Higher Interest Rates

Your loan application will be subject to strict requirements. A loan granted during your consumer proposal will come with a high interest rate. These additional costs can make repayment more difficult and prolong your journey to financial health.

Canceling Your Consumer Proposal

New debts can worsen your financial situation. If you’re already struggling to pay off your consumer proposal, loan payments could make your situation even worse.

If you don’t respect the terms of your consumer proposal, it could be cancelled. In fact, failure to make three monthly payments or prolonged late payments could result in the presumed cancellation of the proposal.

Borrowing during a consumer proposal is possible, but it carries significant risks. It’s crucial to assess your financial situation and risks before making a decision.

Before applying for a loan, assess whether you need one. Sometimes, a budget adjustment or a credit card can help you manage the situation. If possible, wait until you’ve established a good credit history after a consumer proposal before applying for a loan.

Do you have any questions about a consumer proposal? Contact our team at 1-877-352-6661 or by filling out the online form. The first consultation is always free and confidential.