Should I get a personal loan to pay off a car loan if my car doesn't work?
I'm thinking about getting an unsecured personal loan to pay off my secured car loan so I don't have to pay for full coverage insurance.
Currently, the car's head gasket is blown and it costs $5,000 to fix it (money I don't have).
- I owe about $8,000 on the auto loan.
- The interest rate is 7.49%.
- My monthly installments on the auto loan is $209.
- My insurance payments are $319 a month.
And by the way: With the head gasket blown, my car is probably worth about $2000 if I sell it private party.
I have tried to negotiate the terms and conditions of the insurance requirements with the current lien holder of my vehicle (my credit union).
I asked them very kindly if I could change my car insurance policy to "Liability Only" so my insurance is cheaper.
They told me no.
And they wouldn't budge.
So I have an idea to apply for a personal loan of $8000 to pay off the auto loan in order to become the "Primary Lienholder" myself.
I understand that unsecured personal loans have higher interest rates because they are not backed by any collateral.
However, my credit score is about 711 (Good) and I hope to get approved on a 5 year personal loan for $8000 with around 12.99% APR with monthly payments of $182 to pay off my auto loan immediately and sell my car to a mechanic or something.
1. Is this a good idea?
2. Do you think I can get approved for something like this?
3. What other fees can I expect from a lender?
4. When I apply for a personal loan, should I tell them that it's to pay off another car loan? Or should I say that it's for something else?
5. Will I get in trouble with my credit union for pulling something like this?
Thank you for taking the time for reading this.
I hope someone gets back to me soon!
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!
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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