Car Loan When Your Spouse Is in a Consumer Proposal

Not on its own. A credit report belongs to one person. Equifax Canada says your credit report stays separate from your spouse’s, and that one spouse’s poor credit history does not affect the other’s unless you jointly apply for a loan or open a joint account.

The Financial Consumer Agency of Canada describes a consumer proposal as a legal agreement between the person who files and their creditors, set up by a licensed insolvency trustee. So the proposal sits on the filer’s report. The agency says Equifax and TransUnion remove it 3 years after the filer has paid off the debts in the proposal, or 6 years after they sign it, whichever comes first.

One exception is a debt you both signed. A joint account can appear on both credit reports. If you and your spouse share a card or a loan that went into the proposal, read your own report to see how it shows. The federal bankruptcy office says, about bankruptcy, that your debts are your own, but a creditor can pursue your spouse for a joint (co-signed) debt. Your spouse can ask their trustee which debts in the proposal are joint.

Yes. Equifax says being married does not mean you have to apply for credit together. You can apply for a car loan entirely by yourself, and it says that might be the best option when you have the stronger credit file.

Applying alone puts your credit file and your income in front of the lender. Your spouse’s file is not part of it. The catch is that the payment has to fit your income alone. The example below shows what that can look like.

We start with your own application. If adding your spouse would help, we will say so. For the side of a co-signer or co-applicant who is not in a proposal, read do cosigners help with a bad credit car loan.

Applying together changes three things.

• Lenders read both files. Equifax says lenders will likely consider both credit profiles, so if one spouse has poor credit or high debt, it can affect the odds of approval and may lead to a higher interest rate.
• Both incomes can count. Two incomes can make the same payment look smaller next to your pay. The example below shows how much.
• Both of you are responsible. The Financial Consumer Agency of Canada says a joint borrower is equally responsible for repaying the unpaid balance. Equifax adds that a joint account can appear on both credit reports, so late or missed payments can hurt both scores.

Which way it nets out depends on the lender and the files. One Alberta lender’s guide says adding a co-signer with good credit can improve your chances of approval and potentially lower your interest rate. Equifax says a spouse with poor credit can work the other way. Both can be true in different files.

We cannot promise what any lender will decide. We review every application and call you back, and every lender decides each file.

Many lenders count the income of the people on the application. If your spouse is not on the loan, their pay is usually not part of the file. If you want it counted, your spouse applies with you, and that brings their credit file in too.

Here is one example. You earn $3,800 a month and want a used SUV at $28,000.

Alone, that payment is about 16% of your gross monthly pay. A common rule of thumb is a payment near 15% of gross pay, and this one is a little over it. If your spouse applied with you and $3,000 a month of their pay counted, the same payment would be about 9% of $6,800. That is the case for applying together. The cost is that both credit files, and both signatures, are on the loan. To try your own numbers, use the payment calculator.

Then the proposal is on the credit file the lender reads. Our guide to car loans during a consumer proposal covers that side.

Before they sign anything, they should talk to their trustee. The federal bankruptcy office gives two reasons.

• A person who files a proposal must give the trustee a complete list of their assets and debts. A new car and a new loan are part of that picture.
• If a person making monthly proposal payments misses three, the proposal is deemed annulled, and creditors can take action to collect what is owed, unless a court orders otherwise or an amendment has been filed. The Bankruptcy and Insolvency Act, section 66.31, sets this rule.

A new car payment should leave room for the proposal payments. They can ask the trustee whether the proposal needs a sign-off for a new loan. We cannot answer that for them.

Bring what shows who you are and what you earn, for each person on the application.

• Government photo ID.
• Your two most recent pay stubs. If you are self-employed, your latest Notice of Assessment and a few months of bank statements.
• Proof of your address, like a utility bill or a bank statement, and a void cheque.
• If the person in the proposal is on the application, have the proposal paperwork and the trustee’s contact details handy. A lender may ask for them.

For what lenders check about pay, see what car lenders verify when you work. The quickest start is the online application. We review every application and call you back. Or call us at (825) 736-4438.