A car loan may be included in a consolidation arrangement in some circumstances, however secured vehicle finance is different from an unsecured card or personal loan. You need an exact payout figure and a clear answer about what happens to the vehicle security.
Many car loans use the vehicle as security. The lender may have an interest registered over it. A consolidation lender must decide whether it will pay out the secured loan and whether the new facility will be secured or unsecured.
The amount required to close the car loan can include interest and an early-payout or administration fee. Ask how long the figure remains valid and what happens if settlement occurs after that date.
A car loan that is nearly finished may not belong in a new five-year consolidation loan. Compare the remaining repayments and total cost with the treatment under the proposed loan.
Request a dated payout figure for the car loan and record what happens to the vehicle security after settlement. If you install WeMoney and connect your accounts, you can use the app to view the car repayment beside your other debts and household expenses. Review your personalised savings opportunities before deciding whether the car debt needs to move at all.
After payout, obtain written confirmation that the old loan is closed and the security interest has been removed where relevant. Do not assume the car is unencumbered simply because the payment left the new lender.
If the car is needed for work or essential travel, missed repayments can have serious consequences. Test the proposed repayment conservatively and contact the current lender early if repayments are already difficult.
Record the payout figure, interest rate, remaining term, repayment and early-payout fees. Check whether a balloon or residual amount is due at the end. Identify the security over the vehicle and the process for releasing it.
Suppose $10,000 remains at 7.5% with 2 years left. Moving it into a 5-year consolidation loan at 12% lowers the monthly payment, however the car portion costs more and remains unpaid long after the original finish date.
Model the proposed loan with and without the car. Add the old car repayment to the partial scenario. This shows whether the lower-rate secured finance should stay while cards or personal loans are consolidated.
The secured lender generally needs to be paid from the sale so its interest can be released. If the sale price is below the payout figure, there is a shortfall. Do not assume a consolidation loan removes that process unless the old loan is fully paid.
The consolidation loan may be unsecured, secured by the car or secured by another asset. A lower rate can come with greater asset risk. Read what happens after missed payments.
Confirm the old provider received the funds and the security registration was released. Keep the closing statement and verify insurance or direct-debit arrangements that referred to the old finance.
Read the existing car-loan contract before including it in a larger consolidation. Record whether the loan is secured by the vehicle, its payout figure, remaining term, rate, fees and any final balloon payment. A secured car loan may already have a lower rate than an unsecured personal loan, so moving it can increase the cost even when the household repayment becomes simpler.
Ask for a dated payout letter and confirm how the security interest will be released. The lender or settlement agent should explain who sends the funds, how long release may take and what happens if the payout changes. Keep making repayments and maintain comprehensive insurance where the contract requires it until closure is confirmed.
Match the new repayment period to how long you expect to keep the car. Refinancing a 3-year remaining balance over 7 years can leave you paying for the vehicle after you planned to replace or sell it. Compare a partial option that leaves the car loan alone with a full option that moves it.
If the car may be sold soon, request an updated payout and compare it with a realistic sale value. A shortfall does not vanish when the vehicle is sold. It may need to be paid from savings or included in another credit decision, which can change the amount and affordability of the consolidation.
After settlement, check the old account is closed, the security registration is dealt with and any insurance finance is understood. Keep the payout and release records with the new loan documents. An essential vehicle should remain usable and properly insured throughout the change.
Check whether the car is essential for work, care or family travel and include realistic running costs beside the debt repayment. Fuel, insurance, servicing and repairs continue after refinancing. A consolidation option that lowers the loan payment but leaves no room to keep the vehicle operating does not improve the household position.
Car finance needs an especially careful payout check because the vehicle may secure the existing loan. Ask for a dated payout figure and confirm how the security interest will be removed after payment. If the new loan is unsecured, compare the higher or lower rate with the remaining term of the car finance. If the vehicle will secure the new arrangement, understand which debts are now attached to it. Also check whether the current contract has a balloon payment, early termination fee or rebate that changes the amount required to close it.
Compare full consolidation with moving only selected balances.
Try the calculatorYou may be able to keep the car after the old finance is paid, subject to any security terms on the new loan. The car-loan rate does not follow the balance because the amount takes the terms of the new facility. A balloon payment can be included only if the new provider assesses and accepts it.
Some finance contracts require particular insurance while the car is secured. After payout, update the insurer and payment details where needed. If the new loan is secured by the car, understand its insurance and valuation requirements.
Do not extend the debt beyond the useful life of the car without seeing the consequence. You could still be repaying the old vehicle after needing to replace it.
Consider when you expect to keep, sell or replace the car. A consolidation loan that lasts beyond the likely replacement date can leave the old vehicle debt beside the next transport cost. A shorter term or leaving the existing car loan alone may keep those decisions better aligned.
Moneysmart: Debt consolidation and refinancing
This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.
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