Benefits Of Combining Car Loans

Combining car loans is an option for individuals or families that have more than one auto loan in the household. A new loan is sought, traditionally at a lower interest rate than the other car loans, that pays off the two existing loans. Then, the person or people pay one monthly payment to the new lender. The primary advantage comes through reduced interest rates, but there are many soft advantages to seeking a combination car loan.

Lower Interest Rates

It only makes sense to seek a combination loan if you can secure one at a lower annual percentage rate (APR) than the existing loans. This usually happens when your credit score changes dramatically or when the national interest rates have dropped significantly. You should not refinance a car loan for another at a higher interest rate even if you are looking to combine two or more loans. You can get a better interest rate if you are willing to post collateral for your new combined loan; consider this option when you seek a personal loan or auto loan from a new lender. 

One Monthly Payment

It may be easier to manage one monthly payment as opposed to two or more. Many consolidation companies will advertise one, low monthly payment. However, the monthly payment is rarely actually low. Remember: you are consolidating two loans into one, much bigger loan. This means the monthly payment on that loan will be higher than either of the independent loans was previously. Depending on your other terms and the length of the loan you elect, you may be spending more monthly than you were previously on your auto loans. The important thing to keep in mind is the monthly payment does not determine the cost of the loan: the interest rate does. 

Cash Out Options

If you need immediate liquidity, you can use a personal loan to pay off two car loans and use a cash-out option. This allows you to seek a loan for more money than it will take to pay off the other loans. You can use the difference between the new loan and the debt you have remaining on the old loans for immediate purchases. Cash out loans are risky, and you should only consider taking on more debt if you have an urgent need for the liquidity and cannot obtain it another way. 

Debt Settlement Options 

When you pay off a loan early, the lender will be unhappy. There may be penalties and fees to consolidating your car loans. However, if you were unable to make your previous car payments, this may be an opportunity for the previous lender to recover at least a portion of the funds you still owed on the loan. Settlement allows you to pay off the previous loan at a lower total sum than you actually owe by paying it off all at once. This can save you money in the long term and keep credit collections agencies from hassling you.


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