What is a consumer proposal in regard to car loans?

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Thanks to our increased car loan coverage, Car Nation Canada is receiving more questions around the subject. While it means more work for me, it also means the information is getting through, giving you the consumer the information you need to make informed decisions about loans, lending and buying cars. One common question we hear regards consumer proposals. 
What is a consumer proposal?
A consumer proposal is a voluntary agreement undertaken when someone is having trouble paying their debts. It allows you to restructure all your debts into something you can manage while still paying everyone back. It’s an alternative to bankruptcy that means everyone gets their money.
A consumer proposal is a legally-binding agreement. It binds you to paying back all of your debts under the new arrangement. It also stops further interest being added to your existing debt and prevents lenders from taking legal action against you. It also stops debt collection actions from happening. 
Lenders tend to agree to them if they are sustainable as it’s a better alternative to bankruptcy. Borrowers tend to use them for the same reasons.
As it is legally binding, careful thought must be given to the consumer proposal. Professional legal and/or financial advice should be sought before submitting one as it isn’t the ideal solution in every situation.
How will a consumer proposal affect your credit?
Entering into a consumer proposal will negatively affect your credit score. Anything that impacts the original lending agreement will do that. However, as the alternative is usually bankruptcy, completing a consumer proposal will not impact your credit score anything like bankruptcy would.
Filing a consumer proposal will see an R7 credit rating applied to your report. This remains in place for three years after you have completed the proposal. This tells lenders that you were not able to complete the previous loans in the agreed manner and had to compromise them to settle what you can. While this is a negative, it is not a showstopper.
A fully settled consumer proposal also shows lenders that you took your debts seriously and did what you could to pay everyone back and do the right thing. Yes it will impact your credit score and it will remain on your credit report for three years after it was fully repaid but it isn’t the end of the world. If you need a car loan, lenders will just look much more carefully at your situation before agreeing the loan.
If you need a car loan for any reason, with any financial situation, visit your nearest Car Nation Canada dealership. We work with people from all kinds of backgrounds and some very understanding lenders. Contact our team to see what we can do for you!
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