What Is the Difference Between a Consumer Proposal and a Debt Consolidation Loan?

A consolidation loan replaces your debts with a new loan, and you still repay what you owe plus interest. A consumer proposal can generally reduce what you repay and stops interest on the debts included. I'm Doug Thode, a Licensed Insolvency Trustee in Kelowna, helping people across the entire province of British Columbia and the Yukon, from Victoria and Langley to Vernon, Prince George and Cranbrook.

When a consolidation loan can work

A consolidation loan can work well if you qualify at a reasonable rate and can comfortably afford the payments. But it is still a loan. If you cannot keep up, you are back where you started.

My advice on high-interest lending

Some finance companies lend to people who are already struggling at very high rates, more than 30 percent a year. That is not a reasonable rate, and almost nobody can afford it. If you cannot borrow from a Canadian bank at or near its regular borrowing rates, then you probably cannot get the funds, and the option to explore is a consumer proposal.

How a consumer proposal works

A consumer proposal is a legal process filed through a Licensed Insolvency Trustee. You offer your creditors a payment you can afford, over a term of up to five years. A stay of proceedings generally stops collection action on the debts included, and you make one payment to your trustee.

Related questions

How does a consumer proposal affect your credit in Canada? Will a consumer proposal stop wage garnishment in BC? What is the difference between a consumer proposal and bankruptcy in Canada? How long does a consumer proposal last in Canada?

The right choice depends on your debts, your income and whether you can realistically qualify for a loan. A Licensed Insolvency Trustee can compare both with your real numbers. Call 1-866-712-5353 or visit outofdebt.ca.