Car Loan Consolidation Guide

November 13, 2013

For families with a lot of vehicles they are paying on, a car loan consolidation is a logical choice. This type of loan will only helps you have only one payment a month, but could possibly save you a little money.

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Car Loan Consolidation
A car loan consolidation is a process where you combine all the outstanding loans on your vehicles into one lump payment. This can be a good option for you if your situation includes the following:

  • You have several payments due at different times of the month.
  • You want to find a lower interest rate.
  • You want to raise your credit score by having just one loan instead of several.
  • You want to lower your monthly payment.

There are several places, both traditional banking establishments and online banks, which offer competitive consolidation loans for vehicles. A car loan consolidation is relatively easy to get, as the vehicles are all collateral against the loan. With that said, there are still some things that are required before you make any final decisions.

Gather Information
Get together all your current outstanding loans, and find out the remaining balances on all of them. This will give you the amount you have to borrow. Once you have the amounts, begin your search of lenders for the best lending rates and terms. To help you find what your payments would be, use an online loan calculator to figure out different terms and rates.

Proof of Income
Most lenders seek a minimum of 6 months on the job. However, longer term employment is a desirable factor when determining credit worthiness. If you receive direct deposit for your paycheck, gather at least the last 6 month's statements, or present pay stubs as verification for your income and time on the job.

Insurance
Make sure to line up insurance on all vehicles to be covered under the loan consolidation. Look for insurance that offers multiple vehicle discounts. If you've been using one insurance provider for years, but have separate policies, it may be a good idea to consolidate your insurance coverage.

Residency
All lenders look for a stable residency when assessing a potential borrower's credit worthiness. The longer a borrower has maintained a residence, the better the assessment. People who move often, although they have an adequate debt to income ratio, raise worries with lenders. Make sure to have at least 6 months worth of utility bills showing where you live. You will also need a form of identification. Your driver's license is usually sufficient.

Find out Your Credit History
It is always important to know where you stand with your credit rating. The top 3 bureaus, Equifax, Experian and TransUnion have the information you need. Contact all 3, as they will have different numbers. A lot of times, you will be denied a car loan consolidation because of inaccuracies reflected on your credit history report. When you have your own copy, you can fix them before applying for any loans. Without good credit, you may still be able to consolidate, but don't expect great deals on the interest rates.

Apply Online
Many banks have created their own online presence, to be able to offer their services to a wider audience. There are also loan specific institutions that offer high quality loan services with low interest rates and fees. Research their terms, and how much you will be actually paying back. Compare each of them, and choose the best 3 lenders that offer the best terms. Apply to all 3 and wait for the results. If you have fixed your credit rating, and can show proof of employment, you should have no problem with a car loan consolidation.

Car Loan Consolidation: Advantages

Consolidating your loans is a great way to both lower your interest rates and make paying bills as convenient as possible.

Car loan consolidation buys time - A borrower who is sweating large monthly payments can use a car loan consolidation to string out payment over a longer term. Be careful with these kinds of situations, as longer-term loans mean more interest in the end.

Better credit scores can lead to better interest rates - A borrower who has been working on his or her credit score during a loan period may find that he or she now qualifies for interest rates that were previously off limits.

Homeowners benefit from a secured loan situation - One very popular move by those who are struggling with debt is to tie their debts to a home-equity situation. In many cases, this brings down payments and alleviates some of the interest rate that was necessitated by unsecured loans. The downside is that the house becomes vulnerable in nonpayment situations. However, with longer-term credit from home-equity, a borrower will often find more favorable lending environments, and a greater ability to pay off the debt on his or her own terms.

Easier debt tracking - Consolidation makes it easier to keep track of what is owed every month, and pay it on time. This kind of debt consolidation is especially popular with those who owe to multiple credit agencies, leaving the consumer responsible for dealing with just one creditor.

Car Loan Consolidation: Disadvantages

A car loan consolidation can work for some borrowers, but in many cases, it can be dangerous for a consumer's finances. Here are some of the potential pitfalls of a car loan consolidation.

Putting off debt - A loan consolidation only works if it gives the borrower greater momentum in paying off his or her debt. Otherwise, the bill just gets put on a shelf. A lazy borrower can, in effect, be stringing a temporary debt into one that will stretch over a lifetime. Before consolidating, think critically about the reasons for consolidation and strategies for paying off the debt.

Interest rate alleviation is not a given - Another thing for borrowers to be aware of is that new interest rates, in most cases, are only going to be as good as the renovated credit history of the borrower. If a borrower has done his or her homework before applying, an improved credit score can result in lower interest rates. Otherwise, it's unlikely that the borrower will get savings from consolidation.

Shifting interest rates - Beware of consolidation offers that only take advantage of changes in the prime US lending rate. When the general interest rate is down, debt consolidation companies aggressively seek clients. See this for what it is, and not as something you can rely on for long-term car loan consolidation or other debt consolidation.

Involving collateral - One of the first places homeowners look for a car loan consolidation, or other debt consolidation, is with their largest asset: their home. If borrowers have not tapped into their home equity previously, this is something that a debt consolidation company will encourage them to do. This can be beneficial in gaining the lower interest rates obtained by securing the debt against a home. The downside is that the home becomes tied to the debt, and therefore vulnerable to seizure in cases of nonpayment.

How to Research Car Loan Consolidation Options

Check with several banks or lenders to find out what programs are available to you, and who might offer you the best terms for a new loan. Remember, shopping for a loan is just like shopping for many other items. You should always do some comparison shopping. Here are a few suggestions to help you get started:

Ask Your Local Bank
Your local bank is the logical place to start. They know you, and will most likely work to keep or expand their business dealings with you. Approach an officer at the bank, and inform them you are looking to consolidate your automobile loans. Ask them what types of terms and programs can be made available to you.

Search the Internet
There are many online sources for finding a car loan consolidation. In fact, one of the better websites for finding just about any type of car loan, including consolidation programs, is right here at CarsDirect. Here, you can find information on multiple car loan consolidation programs. In addition, you can quickly and easily submit a request for a quote. Cars Direct will submit your request to their network of qualified lenders, and quickly get back to you with several options.

Compare Rates
The first thing to take note of when comparing loan offers is the interest rate offered by different lenders. If you know the amount of the total consolidated loan, use an online calculator to find the total dollar amount you would be repaying to each lender once the interest rate is applied. Converting everything to dollars instead of percentages will make further comparisons easier.

Compare Fees
Compare startup fees, penalty fees and any additional fees for the consolidated loan. Also, look for unexpected charges that may result from paying your loan off early and other such penalties. Consider how likely you are to incur such fees. You may find that a slightly higher interest rate is actually worthwhile, due to a low or waived startup fee. Consider this when comparing.

Compare Benefits
Comparing loans isn't all about the bad. Consolidated loans often have benefits that may elevate one loan over another. Many benefits, such as potentially lower rates and pure convenience, are universal to consolidated loans, but you can look for lender specific incentives, such as waived fees or extended repayment terms.

Car Loan Consolidation Options

Depending on your reasons for seeking to refinance your multiple car loans into a single loan, you'll need to decide between a shorter-term and a longer-term repayment of the loan obligation.

Car Loan Consolidation for a Better Rate
If your credit score has improved since you've purchased your vehicles, you may be looking to refinance the multiple loans into a single loan that offers a lower interest rate. If this is the case, term length will probably not be as much of a factor for you.

Car Loan Consolidation for a Lower Payment
If, however, you're looking to simply reduce your monthly payment obligation, you probably want to seek out a loan program that offers you an extended payment term. A longer-term repayment will generally lower the total amount of your monthly payment. For example, if you purchased a new or used vehicle with a payment term of 36 months, and are now finding it hard to make your monthly payments, you may be able to refinance the loan for a longer-term and reduce your monthly obligation. Even if you are looking to consolidate your car loans for the reason of reducing your total monthly payment, you should still seek out the lowest interest rate available to you.

Consolidating to Quickly Pay off Obligations
On the other hand, if your financial situation has improved, you might want to consider actually shortening the term of your combined loan consolidation. Many times, banks offer more attractive interest rates for shorter-term learns. Remember, the shorter the term, the smaller the amount of interest you will pay.

Consolidating to Buy Another Car
If you have good credit and want to purchase an additional vehicle, you may be able to include the new vehicle as well as the previously purchased vehicles into a single loan at the time of purchase. This option will not be available for everyone. You may want to ask your bank or lender if they can provide this option to you.

Car Loan Consolidation with Bad Credit

Most banks will only approve car loan consolidations to people who can quality for prime rates. However, if you have a bad credit rating this will put you in a subprime rate category.

Subprime Defined
A subprime borrower is one with a credit score below 620. This indicates that there are bad marks on your credit history, such as late payments and defaults, which define you as a higher risk when it comes to lending money to you. It doesn't totally disqualify your from finding car financing. It just makes it more difficult--and more costly.

There are a good number of financial institutions termed "subprime lenders" that specialize in granting loans to high risk applicants. They do this at a price, one that is usually much higher than what people with good credit scores typically pay. The interest rates and other fees associated with subprime loans are generally much steeper, but this may be the best choice to examine before buying from a used car lot with a "Pay Here" deal, which carries a price tag on a vehicle that makes payment way more than the car is worth.

Bad Credit Loan Consolidation
You can get a good rate on a loan consolidation, even if you have bad credit. Here are few tips to help you in the process:

Get your credit reports - Before applying to any loan, you should get a copy of your credit report from all 3 credit rating companies. It there are any mistakes you now have the chance to fix them. If there is anything you can fix yourself--get payments caught up--then you have the opportunity.

Go through a lender instead of dealer - If you have secured dealer financing for your vehicles, then you will have to look elsewhere for your car loan consolidation. Dealers operate on the basis of earning high interest for their loans, so they will not be open to consolidating your loans for you.

Search online for best rates - The convenience and impact of Internet use has led almost every lender--prime or subprime--to get an online presence to increase not only market opportunities but their fair share. Online lenders oftentimes make more reasonable deals because operating costs are reduced. These reduced cost help to attract more potential customers, yet still allow lenders to realize great profit potential from online sales to consumer with less than perfect credit.

The bottom line is that a car loan consolidation, or other debt consolidation, depends upon the careful research done by the borrower before signing any kind of scheme to alleviate debt. Every consolidation agreement is different, and many can include hidden charges, misleading payment options, and other dangers that a borrower may not notice. That's why financial experts encourage those laden with debt to think critically about any offer to consolidate what they owe.

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