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Author: derek51 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308687  
Subject: trade credit card debt for an auto loan? Date: 1/22/2001 2:54 PM
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Here's our situation.

We have about $12,500 in high interest credit card debt.

We also have a 3 year "new" Honda Civic that's paid off.

Our credit union offers used auto loans at 9.0%.

Would it be a good idea to get a loan on the Honda Civic in order to pay off the credit cards? For a 60 month loan the payments would work out to about $265 a month. We're currently paying more than that each month towards the credit cards, but they're not going away quickly enough (due to the high interest rates). We haven't charged any new items on the cards in the past year. We're currently living below our means, but I'm getting sick of seeing how much we're paying in interest.

Will banks do this? Let you "buy" the car from yourself in order to take a loan out on it.

We'd be determined to pay it off sooner than 60 months, but we do want to have the flexibility to make a small minimum payment should an emergency come up.

Let me know what you think. Thanks in advance.

-derek51
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55044 of 308687
Subject: Re: trade credit card debt for an auto loan? Date: 1/22/2001 3:12 PM
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The negative against taking out a loan on your car to pay off credit card debt is that you are trading unsecured debt for secured debt.
You goal should not be to reduce your payment, but should be to reduce your interest. Taking out the 9% loan on the car would do this.
You should not reduce your payment, but it certainly would be nice to have a lower committment so that if one month is particularly tight you can get by.
If your credit card debt is SIGNIFICANTLY more than 9%, I'd say to go for it.
Good luck, Chris

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Author: robb262 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55052 of 308687
Subject: Re: trade credit card debt for an auto loan? Date: 1/22/2001 4:03 PM
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I recently refinanced an auto loan through my credit union at 8.25%. There was enough "equity" in the truck that I was able to suck about $4500 of credit card debt into the loan. Your situation is not quite the same but they might go for it...

Worked out good for me...

Rob

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Author: robb262 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55055 of 308687
Subject: Re: trade credit card debt for an auto loan? Date: 1/22/2001 4:05 PM
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<I recently refinanced an auto loan through my credit union at 8.25%. There was enough "equity" in the truck that I was able to suck about $4500 of credit card debt into the loan. Your situation is not quite the same but they might go for it...>

By the way, the cards are gone and the accounts closed...MAKE SURE YOU DO NOT RUN THE CARD BALANCES UP AGAIN!!!!!!!

Rob


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Author: mlomker Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55061 of 308687
Subject: Re: trade credit card debt for an auto loan? Date: 1/22/2001 4:39 PM
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Will banks do this? Let you "buy" the car from yourself in order to take a loan out on it.

Yes. My father, one of the most frugal people on earth, uses his car as loan collateral quite often (to support my deadbeat brother...sigh).

Just keep in mind that if you miss credit card payments they don't come to take away your car ...!!




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Author: microfood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55066 of 308687
Subject: Re: trade credit card debt for an auto loan? Date: 1/22/2001 5:13 PM
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Realize you won't be getting an auto loan, but rather a "secured personal loan" from your bank. The interest rate for that will likely be a pont or two higher than their auto loan rates. Unless you manage to convince them you are buying the car from your spouse, I don't think they're going to give you what amounts to a 2nd mortgage on your car. But, if you live in Florida, there are plenty of places to get an outrageously expensive "title loan." This of course won't help you :)

--A.

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Author: estermae Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55071 of 308687
Subject: Re: trade credit card debt for an auto loan? Date: 1/22/2001 6:49 PM
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derek,

Whether your credit union will loan the money or not on your car depends on their policy. Ask them!

This plan will work ONLY if you cut up the credit cards so you can't use them until you have this loan paid off (then you can call the credit cards and tell them you need replacements). Do not try to keep them thinking you will resist using them. Something *will* come up where it is more convenient to use a card or...since you have reduced your payments you have a little extra money so just a little will be OK. I see it every day, don't be one of those who find themselves drowning in debt because of this loan.

Lecture over. Class dismissed. :-)

Ester


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