Can I borrow to repay a consumer proposal?

Question: Is there any way to get a loan to pay off the remainder of my consumer proposal. We also have a car loan with 29% interest rate we would like to refinance. I would like to get one loan to pay off both but I have called and the banks say they will not give us a loan because of the debt proposal is pretty much the same as bankruptcy.

Applying For A Loan During Consumer Proposal

We are often asked if it is possible to apply for a loan during a consumer proposal, either to pay off the proposal early, to purchase a car or to obtain a mortgage during a consumer proposal.

It is very difficult to get an unsecured bank loan while you are in the middle of a consumer proposal.  Here’s why:

In a consumer proposal you offer to repay a portion of your debts.  If for some reason you are unable to complete the proposal and pay the remaining balance, the proposal fails and all of your original debts return (less whatever they received during the proposal). That’s why a bank doesn’t want to lend you the money; they are afraid that if the proposal isn’t repaid, you end up with a lot more debt than they expected.

If you have some collateral it is sometimes easier to apply for a secured bank loan although even that is not guaranteed or easy.  If you are thinking of applying for a secured bank loan here are some tips that may help:

  • obtain an appraisal showing the value of your security whether your home, a car or other asset;
  • prepare a budget showing that you can manage the monthly payments on your new loan;
  • ask your trustee to prepare a letter stating that you have made all of your monthly proposal payments in full and on time;
  • if necessary, consider asking someone to co-sign for your loan.

If you are turned down for the loan you still have some options.

  1. Repay the proposal as quickly as possible.  Once it’s repaid, your credit score will begin to improve, so that in the future you can refinance your car loan or borrow at a more reasonable rate.
  2. Your other option would be to get a friend or family member to borrow the money for you, and then loan it to you. Be sure before you do so that you are able to pay them back as they will be responsible for the new loan.

Unfortunately there are no easy solutions, so it may be best to simply continue with the existing proposal then work hard to re-establish your credit rating.

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