Guide to Consolidating Car Loans
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Can You Consolidate Car Loans?
Reasons to Consider Consolidating Car Loans
Streamline monthly payments: If you have multiple car loans, keeping track of the different due dates can get overwhelming. Consolidation can streamline those payments into one monthly payment. Secure a lower rate: If average auto loan interest rates have fallen recently, or your finances and credit score have improved, you may qualify for a new loan with lower interest. Consolidating your auto loans under this new loan can reduce the amount you pay each month, as well as the overall amount of interest you’ll pay over the life of your loan. Make monthly payments more manageable: Finally, if your monthly payments are too high, consolidating with a loan that has a longer term can lower your monthly bills. Be aware, however, that you will be paying interest for longer, which in some cases may increase the total cost of your loan.
Steps for Consolidating Auto Loans
1. Learn the Status of Your Current Loan
2. Choose Your Loan Type for Consolidation
Car consolidation loans: Some auto lenders will offer the ability to consolidate your auto loans into one auto loan that’s secured by your vehicles. While these loans can help streamline your bills, beware that if you miss a payment, your vehicles are in danger of being repossessed by your lender. Personal loans: Like auto loans, personal loans are a form of installment loan. However, unlike car loans, they are often unsecured and require no collateral. When consolidating with a personal loan, you’ll own your cars outright. Personal loans offer a lump sum of cash with few limits on how you use it. You agree to pay back the loan in monthly installments with interest. Home equity loans and home equity lines of credit (HELOCs): A home equity loan allows you to borrow money against the value you’ve built up in your home. These loans use your home as collateral. Because they’re secured, they may offer lower interest rates than other options. However, if you fail to pay back your loan, you’re at risk of your lender repossessing your home. Meanwhile, a HELOC allows you to open a revolving line of credit backed by the value of your home. You can borrow up to a certain credit limit, and as you pay back the loan, that credit limit is restored.
3. Gather Necessary Application Documents
4. Compare Lenders and Apply
Pros and Cons of Consolidating Car Loans
Pros of Consolidating Car Loans
Consolidating can lower your interest rate and/or your monthly payments. Consolidation may also help improve your credit score by decreasing your credit utilization, which is the amount of available credit that you currently use. Consolidating with an unsecured loan will mean that you own your cars outright, and don’t need to fear repossession if you miss a loan payment. That’s not to say there aren’t consequences for failing to pay an unsecured loan. Lenders will do what they can to recoup their losses, including sending the loan to a collections agency.
Cons of Consolidating Car Loans
You may trigger prepayment penalties, if your lender charges them. You could end up with a higher interest rate. This could end up happening if your credit score has slipped since you initially applied. If you extend the terms of your loan, you might end up ultimately paying more in interest than if you’d kept your original loans.
Alternatives to Car Loan Consolidation
Trade in Your Vehicles
Sell Off One Car
Auto Loan Refinancing
Refinancing Your Auto Loan With Lantern
Frequently Asked Questions
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