Can I use a personal loan to pay off my vehicle?
Personal loans can be used for a lot of things. If you’re anxious to pay off your car loan quickly, taking out a personal loan might be the answer, but it could cost you more in the long run. We have a few considerations to keep in mind before moving forward. Get the quickest loans online now!
Take out a personal loan
Personal loans are offered by direct lenders from credit unions, banks or online lenders. Some lenders offer loans ranging from $ 1,000 to $ 100,000, with terms that usually depend on the amount of the loan and your creditworthiness. A borrower with a good credit rating has a better chance of qualifying for a personal loan.
If your credit score is not perfect, it can be difficult to qualify for a personal loan. Personal loans are generally unsecured by nothing (such as a car loan where the vehicle secures the loan). For this reason, lenders may have more stringent requirements to meet.
If you go for a personal loan, you can use that amount to pay off your car loan, make repairs to the vehicle, or just dramatically reduce your car loan balance. However, you cannot use a personal loan as a down payment on a vehicle. Almost all auto lenders require that the down payment not be borrowed money.
If your goal is to pay off your current car loan, be careful or it could cost you more.
Is there a catch?
If you intend to end your car loan with a personal loan, this may not be a good idea in the long run.
Personal loans usually have higher interest rates than auto loans because they are unsecured. To offset this risk, most lenders charge higher interest rates on personal loans. The interest rate for these types of loans varies – they are usually between 6% and 36%.
It may be a good idea to use a personal loan to pay off your car if the interest rate on the personal loan is lower than your auto loan. Some auto loans may carry double-digit interest rates, especially if your credit was poor when you purchased the vehicle.
When a personal loan makes sense for your car
While personal loans can come with higher interest rates, there are a few situations where it makes sense to use one to pay off your car.
- To save money on auto insurance – When you finance a vehicle, you must purchase full coverage auto insurance. If the bill is too much to handle, paying off your car with a personal loan could mean lowering the cost of your auto insurance to basic coverage that meets your state’s minimums.
- To save money on interest charges – If your auto loan has a high interest rate, but you are eligible for a personal loan with a lower one, it could save you money.
- When you are not eligible for refinancing – Refinancing replace your current auto loan agreement with another. Most borrowers do this to get a lower monthly payment, but there can be a lot of requirements for this to happen. If you can’t refinance, but want a more manageable monthly payment, a personal loan might be the answer if you can secure a smaller payment.
- You are immersed in negative equity – Negative equity can cause problems for borrowers when they finance a vehicle and need to get by. A car that is underwater (when you owe more on the car than it is worth), is a tough sell. You must remove the lien from your vehicle’s title before you can transfer ownership, which means paying off the loan. If you want to sell your car but negative equity makes it difficult, getting a personal loan to pay off some or all of that negative equity might help.
Need Bad Credit Resources?
Not everyone is eligible for a personal loan. A bad credit score could be enough reason for a refusal. But if you want to get out of your car loan and bad credit is in your way, we want to help you GreenDay Online.
We help borrowers find dealers who have access to bad credit lenders. Don’t let bad credit get in the way of the vehicle you need and fill out our free form auto loan application form. We will find a dealer in your area who can help you with poor credit.