Financing a Car Loan After a Consumer Proposal

Financing a Car Loan After a Consumer Proposal

Posted on August 29, 2022

If you just went through a consumer proposal and need a car loan, you may feel like you have no other options. Most lenders won't give someone who just went through a consumer proposal a car loan because they think there are too many risks. Our auto loans team talk about what you need to do to get your finances back on track and get the car loan you need to live a normal life.

When Did You Finish Your Consumer Proposal?

Before we go any further, the first thing we need to do is find out when you finished your consumer proposal. What if you were not legally let go of the proposal? If that's the case, you can't take on any more debt, so we'll assume you've been released from the consumer proposal.

Why it's Important to Fix Your Credit Right Away

Your credit score went down a lot because of the consumer proposal, which made your creditors give you a big discount on the total amount you owed. This will stay on your credit report for seven years, so you need to work on rebuilding your credit score so you can get better loan terms in the future.

Signing up for a secured credit card from a company like Home Trust or Capital One is the first step. You can start to fix your credit with the help of these secured credit cards. They work the same way a regular credit card does, but you have to put money in an account that acts as your credit limit.

The more money you put down, the more you can borrow. Your credit score will start to go up as you use the secured credit card and pay it back on time. You should use apps like Credit Karma to keep track of your credit score so you always know it in real time.

Taking a Closer Look at Your Income

There are lenders who cater to borrowers with poor credit or those who recently came out of bankruptcy/consumer proposal. These lenders focus more on your income and, based on how much you earn, they will decide whether to offer you a car loan. The lenders are going to charge you a hefty interest rate to mitigate their risk, so you will not be able to buy a new car but instead, opt for a previously owned model.

However, the used car market is experiencing incredible demand in Canada, so buying a used car will probably make the best dollars and sense for you. Lenders will not approve a loan if your debt-to-income ratio is greater than 40%. What makes this ratio challenging is you could be carrying extra debts. This would be a great time to pay down any existing debts you may help increase the maximum car loan you can secure.

Budgeting for Your Next Car

Since you have problems with your credit, you won't be able to get a loan for a new car. Your best bet is to buy a used car. There are a lot of great used cars on the market. Most Canadians spend around $500 per month on their car loan, so you should have at least that much in your budget, but ideally, you should have closer to $1,000 for more peace of mind.

Best Place to Finance a Car Loan After a Consumer Proposal

After a consumer proposal, let's say you want to find the best car loans. In that case, you should contact local car dealerships that offer second-chance financing. The dealership will look at the details of your application and choose the best lenders for you. Since the dealership already works with these lenders, they can work out the best deal for you. If you are serious about buying a new car, you must go through a dealership.

They will help you every step of the way and show you how to fix your credit so that your next car loan will have a prime-interest rate.

If you're ready for a car loan, we'd love to help with that! simply fill in the form below to get started.