Consolidating multiple loans into one can seem tempting. You get to combine multiple monthly payments into a single payment potentially at a lower interest rate. But is combining your mortgage and car loan the best move?
I’ve taken a deep dive into the pros and cons of consolidating a mortgage and car loan to help you decide if it’s right for your situation.
What Is Loan Consolidation?
Loan consolidation involves taking out a new loan to pay off multiple existing loans This new consolidated loan replaces your old loans, so you now have just one payment to worry about each month
While there is no specific mortgage and car loan consolidation product you can use a home equity loan personal loan, or balance transfer credit card to combine these debts.
How Consolidating Differs from Refinancing
Consolidation is different from refinancing your mortgage or auto loan individually. With refinancing, you get a new loan to pay off your existing mortgage or car loan to secure better terms.
Refinanced mortgages and auto loans use your home or car as collateral. This gives the lender a way to get repaid if you default. It also means you can often get lower interest rates than with unsecured consolidation loans.
Unsecured consolidation loans have higher rates to account for the increased risk to lenders. While you may not save on interest, consolidating lets you simplify multiple monthly payments into one.
Pros of Consolidating a Mortgage and Car Loan
Here are some potential benefits of consolidating your home and auto loans:
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Simpler finances: Instead of tracking multiple loan payments, you’ll have just one monthly bill. No more worrying about missing or confusing payment due dates.
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Lower monthly payments: If you currently have high interest rates, consolidating could potentially lower your monthly payments by securing a lower rate. Stretching out the repayment timeline also decreases the monthly costs.
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Pay off debt faster: You can potentially shorten your repayment period by consolidating into a loan with a shorter timeline than your mortgage. This saves on total interest paid over time.
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Improve credit utilization: Paying off loans lowers your credit utilization ratio, which can boost your credit scores. Responsible use of the consolidation loan further improves your credit history.
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Access home equity: Tapping into your home equity with a cash-out refinance or home equity loan gives you access to funds for other goals.
Cons of Combining a Mortgage and Auto Loan
Consolidating your home and car loans also comes with some downsides:
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Closing costs: If you use a home equity loan or cash-out mortgage refinance, you’ll have to pay closing costs like appraisal fees, origination fees, and title fees. This adds to your total costs.
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Higher interest rate: While your rate may go down, it could also go up with an unsecured consolidation loan. Make sure to compare interest rates carefully before consolidating.
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Longer repayment period: Stretching out repayment over a longer timeframe means you pay more interest overall, raising your total costs.
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Risk of foreclosure: If consolidating into a home equity product, missing payments could lead to foreclosure.
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No asset protection: With unsecured loans, your assets aren’t protected if you’re unable to repay. The lender can pursue legal action to garnish your wages or put liens on your property.
Tips for Consolidating a Mortgage and Auto Loan
If you decide consolidating your home and car loans is right for you, here are some tips to make it go smoothly:
- Shop around for rates to find the best consolidation loan for your situation
- Check your credit reports and scores to get an idea of the rates you may qualify for
- Calculate the monthly payments, repayment timeline, and total interest costs for each offer
- Choose a reputable lender that clearly explains fees, terms, and risks
- Verify your old loans are paid off in full before stopping payments
- Enroll in autopay on your new consolidated loan to avoid late fees
- Stick to a budget to help manage payments and avoid further debt
Consolidating into a loan with a lower rate or more manageable payment timeline can simplify your finances. But it’s critical to weigh the pros and cons carefully for your situation before moving forward.
Frequently Asked Questions about Consolidating a Mortgage and Car Loan
If you’re considering combining your home and auto loans, you probably still have some questions. Here are answers to some commonly asked questions about consolidating a mortgage and car loan.
Can you consolidate a mortgage and car loan?
Yes, it is possible to combine a mortgage and car loan into one new consolidated loan. You would need to take out a new loan, like a personal loan, home equity loan or line of credit, or balance transfer card to pay off the two existing loans.
What are the requirements to consolidate home and auto loans?
Requirements vary by lender, but you generally need a good credit score, sufficient income to repay the debt, and a reasonable debt-to-income ratio. With home equity loans, you also need sufficient home equity.
What is the best loan to use to consolidate a mortgage and car loan?
It depends on your goals. Home equity loans usually have the lowest rates but put your home at risk. Personal loans are unsecured but have higher rates. Balance transfer cards have intro 0% rates but eventually higher rates. Compare options carefully based on your situation.
Can you use a HELOC to consolidate a mortgage and car loan?
Yes, a home equity line of credit (HELOC) can be used to consolidate your mortgage and car loan. You can access funds as needed from the credit line to pay off debts. Rates are usually lower than other options, but your home acts as collateral.
What credit score is needed to consolidate loans?
Each lender has its own minimum credit score requirement. In general, excellent credit (740+) gets the best rates on consolidation loans. But even with fair credit, you can potentially qualify for a consolidation loan with a higher interest rate.
Is it a good idea to consolidate your mortgage and car loan?
It depends on your financial situation. Consolidating makes sense if you want simplified finances, lower monthly payments, or access to equity. But it’s risky if you have bad credit or don’t budget to ensure on-time payments. Look at both the pros and cons before deciding.
Weigh Your Options Carefully
The possibility of securing a lower monthly payment or interest rate can make consolidation attractive. But it also comes with risks like higher costs or loan default. Look closely at your entire financial situation when deciding if combining your home and auto loans is the right move. Consolidation can be a helpful tool when used strategically, but also does more harm than good in some cases. Proceed with caution and don’t be afraid to speak to a financial advisor for guidance making the best decision for your needs.
How to Consolidate Car Loans With Other Types of Loans
For most loans you use to consolidate car loans, you can often consolidate other loan types. Lenders dont necessarily care what variety of loans you consolidate, as long as you can get approved for the consolidation loan. You have many aspects to consider before consolidating several loan types together.
On the positive side, consolidating several loans could result in fewer monthly payments. If you have a high interest rate, you may be able to secure a lower rate. This is especially true if you use a home equity loan. Alternatively, you may be looking for an overall lower monthly payment across all of your debt. You could potentially accomplish this by taking out a longer-term loan.
Consolidating several loans into a single loan has risks, too. If you take out a home equity loan, missing a payment could result in foreclosure of your home. Unsecured loans could result in a higher interest rate or more interest paid over the length of a longer loan term. By consolidating your loans, you could potentially end up taking out more debt in the future. This could put you in a worse financial position.
It also commingles your debt. If you have several loans, you could pay off one loan before the others and lower your total monthly payment amounts. With a consolidated loan, you have to pay off the entire balance before the monthly payment goes away.
What Is Car Loan Consolidation?
With loan consolidation, you can use a different kind of loan to borrow money and pay off your old debt. This consolidates your debt under one new loan. Technically, there isnt a specific type of loan for consolidating car loans. This new loan could be an unsecured personal loan, a home equity loan or line of credit, or even a credit card.