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Should I get a personal loan to pay off a car loan if my car doesn't work?



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    Chris Keesling

    I'm sorry to hear about the car trouble. 

    1. Yes, it is a good idea to use an unsecured personal loan to pay off your current car loan in order to sell the car and lower your insurance bill. 

    2. Yes, it is common to apply for a loan with the purpose to close an existing loan. 

    3. Personal loans should not have any fees to originate. Your car lender should not have any fees to pay off, unless there's a prepayment penalty. 

    4. Absolutely you need to disclose on the application that the purpose of the personal loan is to pay off your car loan. This improves your chances of getting approved, as the underwriter sees that you are not adding another $8K in debt, only replacing existing debt. The underwriter can contact your car lender and pay off the car loan directly as part of finalizing the personal loan. 

    5. You will not get in trouble. You are simply paying off your car loan so that you can sell it and lower your insurance bill. 

    PS--Another option is to apply for a personal loan of $5,000 for the car repair. Maybe your credit union will work with you on this one. Once the car is repaired, you can sell the car at market value (hopefully around the same value as the loan), and then you only have a personal loan of $5,000 instead of $8,000. 

    Hope this helps!

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    I think this sounds like a great plan and agree with all Chris K wrote.  but you are missing the main step, which is:

    once this is all said and done, to pay off the PLC "personal line of credit" quickly and efficiently instead of being in debt over nothing for the next 60 months.

    if you are currently putting $209 to an auto loan and $319 to insurance, that is $528 per month. you estimate a new monthly payment of only $182. if you paid $382 toward the PLC you would be paid off in 26 months, save yourself almost $1800 across the term of the loan. and still have an extra $146 in your pocket every month.  IF you paid $282 you would be clear by your 36th month and still have $246 in your pocket every month.

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