Car loans during or after a consumer proposal

What a consumer proposal is, in plain terms

A consumer proposal is a federal process under the Bankruptcy and Insolvency Act. You file it through a Licensed Insolvency Trustee, who puts an offer to your creditors: a fixed monthly amount, for up to five years, that repays part of what you owe. Once a majority of the debt votes yes, every unsecured creditor is bound by it, interest stops, and the collection calls stop with it. You keep your assets, which is one of the main reasons more Canadians now choose a proposal than a bankruptcy.

More than a hundred thousand Canadians file a bankruptcy or consumer proposal in a typical year, and proposals are now the larger share. That means the lenders we work with see this paperwork on their desks every day. A file with a proposal on it is a known, ordinary shape to them, not a surprise.

Financing during an active proposal

You do not have to wait until the last payment clears. Several non-prime lenders approve a car loan during an active proposal, and two things decide it. First, your proposal payments have to be current; the lender reads the months since you filed, not the filing itself. Second, some lenders want a short written acknowledgement from your trustee that the car payment fits your budget. Trustees answer that request routinely, and bringing them a specific payment amount gets a specific answer.

In the lender's payment-to-income math, the proposal payment sits in the same column as rent. That is fair, and it is also why the car budget is sized around it. A modest, reliable vehicle whose payment holds on your worst month is what gets approved, and it is what keeps both plans on track.

After completion, and what the file looks like

When the last payment is made, your trustee issues a certificate of full performance. That certificate is the key document for a car loan; it tells a lender that the plan was carried out in full. Some lenders read a completed proposal more favourably than a recent bankruptcy discharge, because a proposal comes with years of on-time payments attached and a discharge does not.

On your credit report, a completed proposal typically stays on the Equifax file for three years after completion or six years after filing, whichever comes first, and TransUnion follows a similar schedule. You can pay a proposal off early, with a lump sum or larger payments, and many people do. Early completion starts that clock sooner and puts the certificate in your hands sooner, which often helps the car application as well.

What the approval looks like

Here is what a first car loan during or after a proposal usually looks like.

• A modest vehicle. A compact or small SUV a few years old, from a brand lenders like, with kilometres that leave room for the term.
• A rate above prime, and well below the territory the ads warn you about. Where it lands depends on income, the stage of the proposal, and any down payment.
• A shorter term than a prime buyer would get, so the balance stays ahead of the vehicle's value.
• A payment that survives your worst month, budgeted with the proposal payment already counted.
• A refinance later. Twelve to eighteen months of clean payments on this loan, plus the certificate if you did not have it yet, usually means a lower rate on the next one.

How to make it go smoothly

A few things shorten the wait between the application and the keys.

• Tell us which stage you are at when you apply. Active and completed files go to different lenders, and the right routing the first time saves a week.
• Ask your trustee for the acknowledgement before you fall for a car. With a payment amount in hand, that letter is usually a same-week request.
• Apply once, through one file. Auto-loan inquiries for the same purpose within a short window are typically grouped as one by the bureaus, but five scattered applications across a month read badly. One application covers every lender we work with.
• Put something down if you can. Even a small amount lowers the amount financed and often moves the tier. If you have nothing to put down, apply anyway.