Refinancing with a private loan: an alternative to the consumer proposal

18 Feb 2026

As a financial advisor, it is essential to present your clients with all available options to manage their debts effectively. Refinancing with a private loan emerges as a viable alternative to a consumer proposal. This article explores the differences between these two solutions, the advantages of private refinancing, the process to follow, and the situations where this option is most appropriate.

Differences between refinancing with a private loan and a consumer proposal

Private loan refinancing:

Nature of the operation: It is a new loan taken out with a private lender to repay existing debts, usually unsecured, using the client's home equity as collateral.
Eligibility criteria: Private lenders focus primarily on the property value rather than the borrower's credit history, making it easier to obtain financing for those with less favorable credit histories.
Impact on credit: Refinancing can improve credit score by consolidating debts and reducing the debt-to-income ratio, provided payments are made regularly.

Consumer proposal:

Nature of the operation: It is a legally binding agreement between the borrower and creditors, negotiated by a licensed insolvency trustee, aimed at repaying part of the debt over a fixed period, usually without interest.
Eligibility criteria: Intended for insolvent individuals, i.e., those whose debts exceed the value of their assets or who can no longer make their payments. Unsecured debts must be greater than $1,000 but less than $250,000 (excluding mortgage).
Impact on credit: Although less severe than bankruptcy, a consumer proposal affects credit rating and can remain on record for several years.

Advantages of private loan refinancing

Easier access to financing: Private lenders place primary importance on property value, allowing borrowers with less-than-perfect credit to obtain funds to repay their existing debts.
Fast process: Unlike traditional financial institutions, private lenders offer a faster approval process, often within a few days, allowing borrowers to quickly resolve liquidity issues.
Debt consolidation: By combining several high-interest debts into a single loan at potentially a lower rate, refinancing can reduce monthly payments and simplify personal finances management.
Asset preservation: Unlike a consumer proposal, private loan refinancing allows home ownership to be retained, thereby preserving accumulated net equity.

Private loan refinancing process

Financial situation assessment : Analysis of existing debts, home equity, and the borrower's ability to repay.
Finding a private lender : Identifying a lender offering terms tailored to the borrower's specific needs.
Loan application submission : Providing required documents, such as proof of income, property appraisals, and debt statements.
Property evaluation : The lender conducts an appraisal to determine the current fair market value of the property.
Loan offer : If approved, the lender presents a detailed offer outlining the loan amount, interest rate, term, and repayment conditions.
Loan finalization : Signing legal documents and transferring funds to repay existing debts.

When is private loan refinancing the best option?

Private loan refinancing is particularly suited to the following situations:

Homeowners with substantial equity in their home: Those who have accumulated significant net equity in their property can use this equity to access funds and repay their debts.
Borrowers with less-than-perfect credit history: Private lenders focus more on property value than credit history, providing an opportunity for borrowers with less favorable credit records.
Need for rapid liquidity: The accelerated process of private lenders allows quick access to funds, ideal for those needing an immediate solution to liquidity issues.

Sources

The information in this article is for general purposes only and may not reflect current laws or regulations. Verify any details with a qualified professional before making decisions. Some portions may have been created with AI assistance and should be confirmed for accuracy.