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Can I Consolidate My Car and Personal Loans?

Can I Consolidate My Car and Personal Loans?
Bills.com Team
UpdatedNov 21, 2022
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    2 min read
Key Takeaways:
  • You can consolidate your car and personal loans if you qualify for a larger loan.
  • Usually it's easiest if you own a home with enough of an equity cushion to borrow against it
  • Be certain you can afford the higher payment.

Using home equity or the strength of your credit to consolidate debt

Yes, you can consolidate your car and personal loans if you qualify for a larger loan. Usually it's easiest if you own a home with enough of an equity cushion to borrow against it. However, you can consolidate even if you don't own a home.

Home Equity Consolidating Dos and Don’ts

Before you pull cash out of your home, or tap a home equity line of credit, consider the following dos and don'ts.

  • Do list all your car and personal loan balances and interest rates.
  • Do contact your current lender and several other lenders for rate quotes.
  • Do visit a tax Web site to determine whether you qualify for a home equity loan interest tax deduction. If you must pay the alternative minimum tax (AMT), then you're not eligible for this deduction.
  • Do study your budget to make sure you can comfortably afford the closing costs and monthly payments of the home equity loan.
  • Do compare several loan offers to ensure you receive the best rate and the most reasonable fees from a lender with a good reputation.
  • Don't agree to a loan from the first lender who makes an offer.
  • Don't borrow more than you need.
  • Don't borrow more than 80% of the value of your home between your first mortgage and home equity loan or line of credit. For example, if your home is worth $140,000 and you still owe $100,000 on the first mortgage, you can safely borrow a maximum of $28,000, assuming you can affordably make the payments for both the first mortgage and home equity loan.
  • Don't continue to create new debt once your old debt is consolidated into the home equity loan.
  • Don't treat your house like a cash register.

Personal Loan Consolidation Dos and Don’ts

If you don't own a home, or don't have enough equity to safely borrow against it, you may still be able to qualify. A new personal loan that combines both your car loan and previous personal loans is probably the best option. Before you get a new loan, consider these dos and don'ts.

  • Do research interest rates at several lenders.
  • Do consider the total costs and fees of the new loan before agreeing to it.
  • Do check your credit report and scores before applying for loans.
  • Do remove errors from your report to avoid getting a higher interest rate.
  • Don't agree to the first loan offer you receive.
  • Don't consolidate existing loans that have a lower interest rate than the rate of the new personal loan.
  • Don't borrow more than you need to consolidate your personal and car loans.
  • Don't continue to create new debt after you've consolidated your old debt.

Consolidating your auto loans and personal loans will definitely help you save time paying your monthly bills and reduce the hassle. It may also reduce your taxes or interest rate. Although it may not be possible for everyone, it's worth looking into.

Struggling with debt?

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Texas credit card delinquency rate was 4%, and the median credit card debt was $438.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.

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