Yes, Saving Money on Car Loans is Possible
Times are tough, and people are struggling to make ends meet. The current economic climate is characterized by high levels of unemployment and stagnant trade. Without a plan, things can easily go pear-shaped for the average consumer. Fortunately, there are useful strategies that can be implemented to reduce the financial burden of existing loan obligations. People with several auto loans may wish to pursue options to reduce their monthly repayments, or at the very least to manage them better. The easiest way to get this done is a process known as debt consolidation. If you’re curious to learn more, see what the experts at bestautoloans.com say about this unique way to manage your debt more effectively.
What is Debt Consolidation and How Can It Help with Car Loans?
Anyone who has taken out a loan and is having trouble repaying that loan may find benefit in a unique resource known as a debt consolidation loan. This type of loan is a new loan that is offered at a lower rate of interest than existing options. By consolidating all of your outstanding loans into one payment, through debt consolidation, it is possible to sharply reduce your debt obligations. Debt consolidation loans are powerful resources for people struggling with their monthly loan repayments. Consider the repayments on credit card loans, short-term loans, and auto loans as cases in point.
There are generally two types of loan categories. Secured Loans which require assets as surety in the event of non-payment such as a home loan, or even an auto loan. The other category of loans is known as Unsecured Loans such as credit card loans, personal loans, or student loans. Most people have many different loans running simultaneously, making it challenging to keep everything straight. Loan repayments are often made on different dates, at different rates of interest, and for different amounts. These debt obligations present many challenges for people. That’s where debt consolidation can be a big help.
Many people use debt consolidation loans to repay outstanding credit card debt. It makes sense because credit card interest rates are usually high, and debt consolidation loans offer an affordable solution to get out of debt. The process of applying for a debt consolidation loan is relatively straightforward. Once the applicant gets approved for the loan, that money is used to pay off the outstanding credit card debts, short-term loans, or personal loans. By bundling together all your loans into one manageable loan repayment via the debt consolidation loan, it is possible to streamline all the debt obligations into a single, affordable monthly repayment.
The biggest benefit of a debt consolidation loan is the reduced interest rate on the principal amount of the loan. With more than one auto loan active, it is really useful to consider a car consolidation loan. Not all loans can be consolidated together, though. Unsecured loans should be regarded as a separate obligation to secured loans. Since the loan originator can repossess a vehicle, auto loan debt consolidation is only applicable to automobile loans. It is not possible to combine different loan types in a debt consolidation loan for automobiles.
Different Ways to Consolidate Auto Loan Debt
One of the easiest ways to consolidate auto loans is by way of a balance transfer credit card at 0% APR. These credit card offers are available for a limited time only, typically 12 months to 18 months. Provided you repay all of your outstanding auto loan obligations within that timeframe, you can get away interest-free. The other option is by way of a fixed-rate debt consolidation loan for your auto loans. With this option, you agree to a fixed interest rate (lower than the average of your auto loans), for a fixed term. The cost savings are evident in the monthly repayments and total repayments made.
Advantages & Disadvantages of Car Loan Consolidation
- It’s much easier to manage your car loans and to repay them on time when they’ve been bundled up into a single monthly repayment at a lower rate of interest.
- It is possible to stretch the repayment period over a longer time with car loan consolidation.
- The better your credit score, the more favorable your car loan consolidation rate
There are also several disadvantages to car loan consolidation, notably:
- Always read the fine print regarding the interest rate on car loan consolidation. If there are variable interest rates, this may not always be favorable.
- Car loan consolidation may require users to tap into their home equity to lower the interest rate. In the event of non-payment, the home is on the hook.
- Car loan consolidation may encourage customers to adopt a laissez-faire approach to the repayment of debt. This can be problematic as the bills start mounting.
Once again, the decision to apply for a car consolidation loan is one that should be researched carefully. Important elements to consider include the impact it will have on your debt-to-income ratio, the APR and terms of the loan, and the affordability thereof. It may be beneficial to build up your credit score before applying for a car consolidation loan, as this is the easiest way to lower the interest rate.