Can You Consolidate Your Car Loans?

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When you consolidate your auto loan debt, you get a new loan that combines all of your auto loans into one, with a single monthly payment.

Ideally, the consolidated auto loan will save you money because it will have a lower interest rate than your other loans.

Should I Refinance or Consolidate My Auto Debt?

Refinancing your auto loan is another option to consider if you want to save money on your monthly payments. However, it doesn’t solve the same issue as debt consolidation.

Loan refinancing is best for people who want better terms on one loan. Debt consolidation is best for people who are looking to get better terms and one monthly payment on all of their debts.

How to Combine Two Car Loans Into One Auto Loan

1. Make sure you understand how much you’re paying on all of your auto loans, especially how much the interest costs.
2. Check your credit score to determine what kind of loans you’re eligible for.
3. Shop around to see what kind of interest rates other lenders will offer you.
4. Compare the loan terms, including the annual percentage rating. It’s best to choose a lender that offers a low APR and fixed interest rate.
5. Submit your application.

What Are the Pros and Cons of Consolidating Car Loans?

There’s a lot to consider before you apply to consolidate your car loans.

Pros

The major advantage of combining multiple auto loans into a new loan is the opportunity it provides for a potentially lower interest rate than the initial rates on the original auto loans. Auto loan consolidation offers appealing features, including:

• Less interest: Auto loan consolidation makes the most sense if you can get a lower APR on your new loan than the existing loans. Factors that can reduce your APR include improvements in your credit score or a drop in national interest rates. Typically, you will get a better interest rate if you put up collateral for your new combined auto loan.
• One convenient monthly payment: Although your monthly payment will probably be higher because you’re combining loans into one bigger loan, it could be easier to manage just one monthly payment rather than trying to keep track of multiple payments. Combining two car loans into one can create some wiggle room in your monthly budget.
• Improved credit score: Credit agencies interpret the consolidation of existing loans into a new loan as paying off those existing credit accounts. The consolidated loan will appear as a new credit account, but the accounts for the old loans will be positive.
• Cash-out options: You can take advantage of cash-out options to obtain liquid funds in urgent situations. For example, you can use a personal loan to consolidate two auto loans and, if you take out a new loan worth more than the debt on the existing loans, you can get the difference as cash.

Cons

The main reason to combine two or more car loans into one new loan is to secure a better APR than that of the existing loans. But a new, lower interest rate is not guaranteed when you attempt auto loan consolidation. If you haven’t significantly improved your credit between the time of the original loan and the new, consolidated loan, you might not get better auto loan rates.

Here are some other disadvantages to auto loan consolidation:

• Limited availability: Only a limited number of lenders provide auto loan consolidation.
• Bigger monthly payments: Depending on the terms of your consolidated loan, you might have to spend more on monthly payments with the new loan than you did on the original loans.
• Extend the loan term: If you extend the term of the loan, your monthly payments might go down, but you could pay even more in interest than on your original loan.

Alternatives to Car Loan Consolidation

If consolidating your car loans isn’t right for you, you can also consider:

• Trading your car in: Trading your car in for a less expensive one can help you lower your monthly payments.
• Personal loan: Depending on the lender, a personal loan might have cheaper interest rates than your current terms.
• Debt management programs: If you’re feeling overwhelmed with your debt, these programs can help you get a handle on it.
• Balance transfer card: These cards give you a set amount of time, for example 18 months, to pay off your debt with no interest. However, you will have to pay a balance transfer fee.
• Voluntary repossession: Contact your lender and let them know you can no longer make the payments. They will arrange how they will take back the car.
• Settling your loan: If you’re having financial hardships, your lender might allow you to settle the loan for less than the original amount.

Is Auto Loan Debt Consolidation Right For You?

If you can combine all of your auto debt into one loan and save money on your monthly payments, a debt consolidation might be worth it for you. Otherwise, you should consider other options.

Jennifer Calonia contributed to the reporting for this article.

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