The grouping of two or more loans is called a loan consolidation. This practice is not common with auto loans, but it is possible. Here’s how it works.
Combine car loans
Loan consolidation is the combining of two or more loans into a separate new loan.
This is more common for borrowers with multiple credit cards or personal loans. Loan consolidation is worth it if one or more of your loans have a high interest rate – combining them could mean saving money in the long run. Some borrowers consolidate their loans for the convenience of having one monthly payment instead of several.
You may also be able to consolidate your auto loans if you qualify. Let’s say you have two car loans. Let’s say you apply for loan consolidation with a lender and qualify. The lender pays off both car loans and creates a new loan for both balances. It’s similar to refinancing in that you get a new loan agreement. Once the process is complete, you only have one monthly payment and one loan to worry about instead of two separate auto loans.
Considerations Before Combining Your Auto Loans
Before consolidating your car loans, you need to take a closer look at what your total costs might be at the end of the term.
If you have a car loan with a very high interest rate that creates exorbitant interest charges, it may be worth combining it with an existing car loan to save money. It only benefits you if you can get a lower interest rate on the consolidated loan. However, a larger balance could mean extending the term of your loan so that you can afford the monthly payments – which could mean more interest charges in the long run, even if you have a higher interest rate. low.
Auto loans almost always use a simple interest formula, which means you are charged interest daily on the loan balance. The higher your loan balance and the longer you have had this loan, the more interest you pay. Also, since you’re only making one monthly payment on two car loans, it could take a long time to finish paying off the loan.
Before consolidating, be sure to compare the total cost of splitting auto loans versus combining them. Keeping them separate might actually be more profitable, depending on the current interest rate and the situation of each loan.
Other car loan options
If you do the math and consolidating your auto loans won’t save you money in the long run, it may be worth considering selling one or more vehicles, if possible.
If you get a trade-in or private offer big enough to pay off the car loan, you can leave the car behind and look for a more affordable vehicle for your situation.
It may also be worth looking into refinancing. Refinancing involves replacing your current car with another, with lowering your monthly payment usually being the end goal.
Often, borrowers who want to consolidate their loans or refinance do so to save money on monthly payments. Bad credit is often responsible for higher monthly payments due to a high interest rate, so it may be worth improving your credit score and applying for a car loan when it’s in better shape.
You don’t have time to repair your credit, but you need a vehicle?
Credit repair can take time. If you’re looking for a way out of a car loan, but are worried your credit score will get in the way of your next vehicle, consider subprime lenders.
These lenders specialize in assisting borrowers with difficult credit conditions. Instead of relying solely on your credit history and credit score, they look at the many facets of your financial stability, such as pay stubs, utility bills to prove your residency, review your work history, etc By asking for additional information outside of your credit reports, they can get a better picture of you as a borrower.
As a bonus, subprime auto loans are reported to major credit bureaus. This means that your on-time payments improve your credit score, increasing your chances of qualifying for a better deal and/or interest rate the next time you shop for a vehicle.
To find a subprime lender, you need to find a special financial dealer who has registered with them. Most dealerships have relationships with one or more third-party lenders, but not all are registered with subprime lenders.
Need help locating bad credit loan resources?
Combining auto loans isn’t for everyone, and consolidating may not save you money in the long run. For many borrowers, selling one of the vehicles and getting another, more affordable car loan, makes more financial sense.
Bad credit, however, can get in the way of financing a vehicle. Here has Auto Express Credit, our goal is to help borrowers find dealers who have low credit resources. We have built up a nationwide network of dealers who are signed up with subprime lenders. Start looking for a special financing dealership in your area by filling out our free auto loan application form, and we’ll do the research for you.