Can I get a loan while in a consumer proposal

Applying for a loan during a consumer proposal

If you are in the middle of a consumer proposal, then you might find yourself wanting to apply for a loan. Perhaps you need a little extra help and a loan might give you the financial boost you need in this tough time.

Filing a consumer proposal can be a good way of reducing your debt and in some circumstances, debt can be reduced by up to 80% in a consumer proposal.

However, if you have chosen to go down the consumer proposal route, this does make it difficult to borrow from lenders.

What is a consumer proposal?

A consumer proposal is a legally binding document that is written up using the help of a licensed insolvency trustee who is there to offer support with your finances and debt.

In the process of drawing up a consumer proposal, your trustee will work with you to develop a document that offers to pay creditors a percentage of the money they are owed or extend repayment dates – or both potentially.

A consumer proposal allows individuals who are drowning in debt to try to reduce it whilst also keeping their debtors happy.

How does a consumer proposal affect my credit?

You should be aware of any potential drawbacks of filing a consumer proposal on your personal credit report.

During a consumer proposal, your credit rating will lower to an R7 status, the third lowest rating above asset repossession (R8) and bankruptcy (R9).

Your credit score is likely to drop significantly during a consumer proposal and it can be challenging to lift it.

How will a consumer proposal affect my ability to get a loan?

As your credit score is likely to be much lower as a result of filing a consumer proposal, this will make it difficult for you to take out any loans as they are unlikely to be approved.

However, it is common knowledge that those who are filing a consumer proposal are having big financial struggles and with most of your income going towards proposal payments, this will make it doubly difficult to build financial security.

Whilst a consumer proposal can be detrimental to your credit rating, having a loan approved during a consumer proposal is not impossible, although it would be much easier after the process has completed.

What can I expect if I apply for a loan while in a consumer proposal?

Here are some things you should expect if you apply for a loan while in a consumer proposal:

  1. Your finances and credit will be assessed.
  2. You will need to provide evidence of a stable income.
  3. Your lender will need to be in touch with your LIT or consumer proposal administrator to discuss how responsible you have been with payments to that point.
  4. Your trustee will not stop you from getting a loan but will work with you to make sure that you don’t take out a loan that isn’t feasible for your budget.
  5. You will need to show your administrator or trustee and a lender that you are able to manage both loan and consumer proposal payments.

How do I get my loan?

If you can provide evidence that your consumer proposal has made you more responsible with money, then you may be able to get approved for a loan.

If you have reached a point of approval, then there are things to consider to make sure that you don’t fall back into a sea of debt.

Get a good lender

The main issue with trying to get a loan during a consumer proposal is the fact that many lenders are extremely strict about the criteria you have to meet in order to obtain a loan. That being said, it can be tempting for those, particularly vulnerable and desperate individuals, to seek a loan from an unreliable, private and bad source.

Be aware of scams

You should be cautious about lenders who will approve you easily because although you may have got your loan, a low credit rating can give lenders permission to bump up interest on your loan and this will make it more expensive as time goes on.

There are also a lot of scams out there who target vulnerable borrowers and lead them into a false sense of security in order to steal their financial information.

Do not let desperation influence your thinking – it can end up making your situation far worse if you do!

Our licensed insolvency trustees are here to advise you on the best path to a debt-free life that suits you and your needs. If you’re struggling with financial problems, we can help. Contact us today to speak to a member of our team.