The unfortunate simple answer is no, you cannot use an auto loan to offset your credit card bills. The reason is that no bank or financial institution will grant you a car loan in cashable form.
All auto loans are awarded as transferrable checks which can easily be passed on to your preferred car dealer or vehicle vendor. Therefore, there is no such opportunity or grace of being able to utilize the loan for other purposes.
Most lenders will demand the vehicle identification number (VIN) of the car intended to be purchased during the paperwork and contract agreement of the loan grant. This is done to prevent a case of veering off the original agreement of what you wanted the loan for.
Auto refinance is an escape route from an unbearable and inconvenient loan term with your current financier/lender. Although choosing to refinance your auto loan may require certain sacrifices ranging from over-extended repayment period to an outrageous overall interest in the long run.
Hence, to make life more bearable financially for yourself, especially if you must pay off your debts while servicing an auto loan simultaneously, here is a wiser route to follow:
- Apply for a cash-out auto refinance instead.
Confused? Well, this is what it entails: Did you know the equity on your existing auto loan made possible by your car’s worth can be cashed out? Of course, it can!!! And here is how: the difference in the value between your car’s worth in cash and the amount you currently owe is cashable. Here’s something you should also know: that difference in value is what is referred to as “equity.”
Automobiles depreciate with use and lose their value as the years run by. Auto loans are therefore granted according to a car’s worth based on its current value after proper assessment. A vehicle with a longer useful life would fetch a higher loan package than another with a much shorter useful life.
Still not very clear about the cash-out auto refinance process? Let me give you a simple illustration. Assuming you have an outstanding payment of $9,000 (nine thousand dollars) and your car is valued at $15,000 (fifteen thousand dollars). The $6,000 (six thousand dollars) difference is then considered your equity.
That $6,000 can be cashed out for settling personal expenses. Seems quite easy to bargain, right? But seamless as it sounds, not all lenders practice it. Therefore, if you decide to opt for this solution, do your research to know where it is rendered. Another point to note is that your current financier will not suggest nor render such to you. Instead, you will have to consult another cash-out service provider whose role will be to offset your outstanding bill and then permit you to cash out the balance.
The cash-out auto refinance method is also an auto loan refinance process just that the former helps you obtain cash at hand for miscellaneous expenses during your loan repayment period as explained above. There are additional channels that you could leverage which are cheaper means than refinancing your car. Let’s discuss the feasible processes:
- Passive or Full-time Hustling:
There are many auto rental or car hire businesses you could engage in with your car to fetch you passive income in addition to your major paycheck. Depending on your free time outside official duties, you can do this part-time/passively or full-time if you do not have a 9 to 5 job schedule.
- Modify your Loan Terms with the Lender:
To make repayment more convenient for yourself, contact your financier for reconsideration regarding the unbeneficial terms backing the contract. They may sound indifferent initially but if you hit the right buttons and happen to get lucky by reaching the appropriate official in charge, you will be considered. That would save them from going through endless protocols of trying to repossess your car if you default in payment.
- Credit Card Borrowing Advantage:
Although some credit cards are issued with zero percent interest charged for the first year of use, it is best to check with your vendor before you begin borrowing on your credit card. That is because several others charge users as much as 20% on their cards so it is best to first be aware.
Meager monthly payments on your CC are also not a great recipe for borrowing on it. That could worsen your credit score and mess up your finances big time rather than solve your problems. So, be sure to check all these underlying issues first before diving head-in into borrowing on your credit card.
- Exchange or Out-right Sale of your Car:
You may decide to trade your car for a cheaper one or be bold to sell it off completely to increase your gain. Exchanging for a less-expensive vehicle should come with extra cash or a lower repayment balance as the case may be. It could also complete your repayment if you get a very good sale deal.
- Other Less Demanding Loans:
Home equity and personal loans are two of the other less demanding loans you can select from. Remember that buildings are valued more than automobiles because of their tendency to appreciate with time contrary to the depreciable value of vehicles over time. Therefore, you stand a better chance of obtaining higher equity on your house than you do on your car. Personal loans require no collateral so you may also want to give them a try.
If you choose to apply for an auto equity loan popularly known as cash-out auto refinance, remember to try credit unions because of their lower interest rate charges as compared with banking institutions. Auto equity loans fast track the process involved in obtaining quick cash so you may want to also consider this advantage and sole purpose of needing an auto refinance in the first place.
You have several other juicy options to select from as well in case you do not qualify for the equity application requirements. Five of them have been highlighted and explained above. Be free to make a choice you qualify for based on your preference and convenience, which is key!