Combining two or more loans is called loan consolidation. This practice isn’t common with auto loans, but it’s possible. Here’s how it works.

Combining Auto Loans

Loan consolidation involves combining two or more loans into one new, separate one.

It's more common for borrowers with multiple credit cards or personal loans. Loan consolidation is worth it if one or more of your loans has a high interest rate – combining them could mean saving money in the long run. Some borrowers consolidate their loans for the convenience of just having one monthly payment instead of many.

You may be able to consolidate your auto loans, too, if you qualify. Say you have two car loans. Let’s imagine you apply for loan consolidation with a lender and you qualify. The lender pays off the two auto loans and creates a new loan for both balances. It’s similar to refinancing in that you get a new loan contract. Once the process is complete, you only have one monthly payment and one loan to worry about instead of two separate auto loans.

Considerations Before You Combine Your Car Loans

Before you consolidate your auto loans, you need to look deeper into what your total costs could be at the end of the term.

If you have an auto loan with a really high interest rate that’s creating exorbitant interest charges, it may be worth it to combine it with an existing auto loan to save money. This only benefits you if you can get a lower interest rate on the consolidated loan, though. However, the larger balance could mean lengthening your loan term so you can afford the monthly payments – which could mean more interest charges in the long run, even if you have a lower interest rate.

Car loans almost always use a simple interest formula, which means you’re charged interest daily on the loan balance. The larger your loan balance, and the longer you have that loan, the more interest charges you pay. Additionally, since you’re only making one monthly payment on two car loans, it could take a long time to finish paying off the loan.

Before you go through with a consolidation, be sure to compare the total cost of keeping the auto loans separate versus combining them. Keeping them separate could actually be more cost-effective, depending on the current interest rate and situation on each loan.

Other Auto Loan Options

If you do the math and consolidating your auto loans doesn’t save you any money in the long run, it may be worth it to consider selling one or more of the vehicles, if possible.

If you get a large enough trade-in or private-party offer to pay off the auto loan, you can leave the car behind and look for a more affordable vehicle for your situation.

It may also be worth it to look into refinancing. Refinancing involves replacing your current auto with another one, lowering your monthly payment usually being the end goal.

Often, borrowers who want to consolidate their loans or refinance do so to save money on monthly payments. Having poor credit is often a culprit of higher monthly payments due to a high interest rate, so it may be worth your time to improve your credit score and apply for a car loan when it’s in better shape.

Don’t Have Time for Credit Repair But Need a Vehicle?

Credit repair can take time. If you’re looking for a way to get out of a car loan, but you’re worried your credit score could get in the way of your next vehicle, then consider subprime lenders.

These lenders specialize in assisting borrowers in tough credit circumstances. Instead of just relying on your past credit history and credit score, they look at the many facets of your financial stability such as check stubs, utility bills to prove residency, take a look at your work history, and more. By asking for additional information outside of just your credit reports, they can get a better picture of you as a borrower.

As a bonus, subprime auto loans are reported to the major credit bureaus. This means your on-time payments improve your credit score, increasing your chances of qualifying for a better deal and/or a better interest rate next time you shop for a vehicle.

To find a subprime lender, you need to find a special finance dealership that's signed up with them. Most dealerships have connections with one or more third-party lenders, but not all of them are signed up with subprime lenders.

Need Help Locating Bad Credit Lending Resources?

Combining auto loans isn’t for everyone, and consolidating may not save you money long-term. For many borrowers, selling one of the vehicles and getting into another, more affordable car loan makes more financial sense.

Bad credit can get in the way of vehicle financing, though. Here at Auto Credit Express, it’s our goal to help borrowers find dealerships that have poor credit resources. We’ve accumulated a nationwide network of dealers that are signed up with subprime lenders. Start the search for a special finance dealership in your area by filling out our free auto loan request form, and we’ll do the searching for you.