Can You Combine Auto Loans? How and When to Do It

Combining auto loans, or an auto loan with other types of debt, can simplify financial obligations. This process aims to reduce monthly payments, potentially lower overall interest paid, or adjust repayment terms to better suit a current financial situation. People consider this option to streamline debt management and potentially secure better interest rates. The objective is to create a single, more manageable payment structure.

Understanding Auto Loan Consolidation Options

Individuals have two primary pathways to combine auto loans: auto loan refinancing or using a personal loan for debt consolidation. Each approach offers distinct characteristics.

Auto loan refinancing

Auto loan refinancing involves securing a new auto loan to pay off one or more existing car loans. The new loan replaces the old one, from a different lender, with the vehicle remaining as collateral. This method aims to achieve a lower interest rate, reduce the monthly payment by extending the loan term, or shorten the loan term to pay off the debt faster while saving on total interest.

Personal loan for debt consolidation

Alternatively, a personal loan for debt consolidation allows borrowers to take out an unsecured loan, not backed by collateral like a car. Funds from this personal loan are then used to pay off one or more auto loans and other types of debt, such as credit card balances. Once the auto loan is paid off with personal loan funds, the vehicle’s title becomes clear, as the new debt is an unsecured personal loan. This approach consolidates a broader range of debts into a single, fixed monthly payment.

Information and Decisions for Combining Auto Loans

Before applying to combine auto loans, lenders evaluate several factors to determine eligibility and loan terms for both refinancing and personal loans. Understanding these requirements helps prepare for the application process.

Lenders assess an applicant’s creditworthiness

Lenders assess an applicant’s creditworthiness, including their credit score and credit history. While specific minimums vary, a credit score above 600 is preferred, with scores of 670 or higher increasing the chances of securing favorable terms. The debt-to-income (DTI) ratio is another metric, calculated by dividing total monthly debt payments by gross monthly income. Lenders prefer a DTI ratio below 36% to 50%, as it indicates the borrower’s capacity to manage additional debt. Employment history, demonstrating stable income, is also a consideration.

For auto loan refinancing specifically, the vehicle’s characteristics play a role.

Most lenders have limitations on vehicle age and mileage, refinancing cars under 10 years old and with less than 120,000 to 150,000 miles. The existing loan balance and remaining term are also reviewed; some lenders require a minimum remaining loan amount, around $5,000, and a minimum of 6 to 24 months left on the loan term.

Preparing for an application involves compiling several documents.

This includes proof of income, such as recent pay stubs or tax returns, and identification like a driver’s license. Proof of residence, a utility bill, and proof of vehicle insurance are standard requirements. For existing auto loans, applicants need details like account numbers, the current payoff amount, and the vehicle’s identification number (VIN).

Before proceeding, understand the current terms of any existing loans

Before proceeding, understand the current terms of any existing loans, including interest rates, remaining balances, and exact payoff amounts. Research potential new interest rates from various lenders. Evaluate desired new loan terms, such as a shorter length to save on interest or a longer one to reduce monthly payments.

The Auto Loan Refinancing Process

The process of auto loan refinancing begins with submitting an application. Many lenders offer online portals for application submission; in-person or mail options are also available. This initial step involves providing personal, financial, and vehicle details to the prospective lender.

Following application submission, the lender undertakes a review and approval process.

This stage involves a credit check, which results in a “hard inquiry” on your credit report and has a temporary, minor impact on your credit score. The lender also assesses the vehicle’s value and verifies the provided information to determine eligibility and present a loan offer. This offer details the proposed interest rate, loan term, and monthly payment.

If the loan offer is accepted, the next step involves finalizing the new loan agreement.

This includes reviewing and signing the new loan documents. Some states impose title fees and taxes for vehicle refinancing, which can be included in the new financing amount.

The new lender takes responsibility for paying off the existing auto loan(s) directly.

The new lender takes responsibility for paying off the existing auto loan(s) directly. The borrower should confirm that the old loan(s) have been fully paid off after this transaction. Subsequently, the vehicle’s title will be updated to reflect the new lender as the lienholder. The final step involves making regular payments on the new, consolidated auto loan.

The Personal Loan Consolidation Process

The process for obtaining a personal loan to consolidate auto loans and other debts follows a structured series of steps. The first action involves submitting a personal loan application to a chosen lender. This application can be completed online, providing quicker processing times.

After the application is submitted, the lender reviews the information provided and conducts a credit assessment.

This includes a credit check, which is a hard inquiry that temporarily affects your credit score. The lender evaluates your financial profile, including income and debt, to determine approval and the terms of the personal loan.

Upon approval, personal loan funds are disbursed directly to the borrower.

This occurs via direct deposit into a designated bank account within a few business days. Unlike auto refinancing where the new lender pays off the old loan directly, with a personal loan, the borrower is responsible for using these disbursed funds to pay off existing auto loans and any other debts intended for consolidation.

The borrower must ensure that all targeted existing debts are paid in full.

The borrower must ensure that all targeted existing debts are paid in full. Once the auto loans are satisfied, the car titles will be released from the previous lenders. The final stage involves establishing the payment schedule for the new, single personal loan.