There are various situations when debt consolidation is the only way out of a difficult financial situation, but there are also situations when you have to consider if you really want to go through with one more loan agreement. Usually, people try to consolidate mortgage loans or payments on several credit cards. Does it also make sense to consolidate a car loan?
Loans for a New Car
New cars are expensive, especially if it is a brand new model with the latest gadgets and technology in it. Sometimes, you see a car and you really want to have it, despite the voice of reason telling you that it is too expensive. If you take up a larger loan than you can afford, you may reach the point when you need debt consolidation for it.
However, is it really worth it? The sad truth about brand new cars is that their value decreases very fast during the first years. If you signed for a loan on a top car model and in the second year of ownership find yourself unable to repay it, consolidating the loan will probably get you nowhere.
The reason for this is that the principle of consolidation loans is to lower your monthly installments – which means that they are for a longer term. In this situation, you will be paying for 5 or 6 years for a car whose value keeps decreasing.
Loans for a Used Car
Ironically enough, pre-owned or used cars do not decrease their value as abruptly as brand new cars. Therefore, if you really need that car and you struggle with the loan, debt consolidation is actually a viable option for you. This depends, of course on how old the car is, how good your credit score is and other issues.
If you want to understand a lender’s logic when deciding to refinance your loan or not, ask yourself: is the car worth the loan? If you cannot keep up with the payment, would you get enough money from selling it to repay the consolidated loan?
In general, banks and credit unions will consolidate debts for cars which are 4 years old or less. The refinancing depends also on whom you bought the car from. If you got it from a car dealership, your chances are higher than if you bought it directly from its previous owner.
In the end, consider how much longer you intend to use your car. If it is longer than 3 years, you should seek debt consolidation loans; otherwise, you are better off selling the car in order to liquidate the loan.