A Guide to Refinancing Two Car Loans into One

Refinancing your car loan allows you to exchange your current debt for a new loan. Typically, the outcome is a lower monthly payment thanks to a lower interest rate or better terms.

Refinancing can be a great option for someone who is struggling to make their monthly car payment or has improved their credit score since taking on the debt. With a lower monthly car payment, you can take the extra money each month and put it toward paying off the loan sooner or paying down other debt.

If you have two cars that both have loans, you may want to know if you can refinance those two car loans into one. This is a good question, as making two monthly loan payments can increase the risk of missing a payment or being late.

This guide answers the question, "Can you refinance two car loans into one?" and discusses the advantages and disadvantages of doing so.

Thinking of refinancing? Easily compare rates from lenders below.

Refinancing vs. Consolidating Debt

First, let's discuss the difference between refinancing a loan and consolidating a debt. When you refinance a loan, you pay off your old loan with the money you borrow for a new loan. Most people do this because they can get a better interest rate that helps lower their monthly payments.

Keep in mind that lenders are less likely to refinance your car loan if you're upside down on the loan, which is where you owe more than the vehicle's fair market value. You must also have had your car loan for at least a year before a lender will consider refinancing.

Consolidating debt, on the other hand, is when you combine multiple debts into one. People often consolidate mortgages, credit card debt, and car payments into one debt load.

This means they only have one payment each month, which sometimes allows them to secure a lower monthly payment. Debt consolidation isn't for everyone, so it's a good idea to calculate the current interest on your debt before you decide to consolidate two car loans into one. Sometimes, consolidating won't save you money in the long run.

Can You Refinance Two Car Loans into One

When you combine two car loans into one, you're actually consolidating the debt, not refinancing. Although both options have a similar outcome, you can't combine loans when you refinance, as you're just trading one loan for another with better terms.

So, while you can't refinance two car loans into one, you can consolidate that debt so that you're only making one payment a month rather than two. You may also be able to roll all your debt load into a debt consolidation loan so you only have a single monthly payment.

Advantages of Consolidating Car Loans

If you're thinking about consolidating two car loans into one, you may be interested in finding out more about the benefits of this strategy. You may decide to consolidate your car loans because you want to avoid having multiple car payments each month, especially if your car payments are due on different days.

The benefits of consolidating two car loans extend beyond simply reducing the number of bills you have. Here are some of the other benefits you can expect:

• Better budgeting: It's easier to keep track of your budget when you only have one debt payment to make each month. When you can see the amount you owe in a single bill instead of multiple bills due at different times each month, you can better track what you're spending and take control of your spending habits.

• Reduced payments: Consolidating two car loans into one means fewer payments to make each month. Even if the amount you pay is the same, you'll have a single car payment rather than the hassle of making multiple payments each month, which increases the likelihood that you'll be late or miss a payment.

• Lower interest rate: In some cases, you may be able to get a lower interest rate when you take out a debt consolidation loan. Your monthly payments will be lower if you qualify for a lower interest rate.

• Faster debt payoff: Combining your debt into one loan can help you pay the debt off faster. If you choose a shorter term to repay what you owe, you could be out of debt sooner than you thought.

• Improved credit score: If you've been late on your car payments because you struggle to make the payments each month for some reason, this can affect your credit score. Consolidating your car loans could help you make your payments on time, improving your credit score.

Disadvantages of Consolidating Car Loans

While consolidating two loans into one has many benefits for your budget, there are some disadvantages to consolidating two auto loans. It's good to be aware of these downsides before consolidating multiple loans. Consider the following disadvantages before you talk to your lender:

• Longer repayment time: Consolidating car loans may reduce your monthly payments but at the cost of extending the length of the debt. For example, if you have one car loan that you're set to pay off in a year and another one that still has three years on the note, combining the loan means you won't pay off the first loan in one year because the two loans will be tied together.

• No reduction in interest rate: You won't always get a better interest rate when you consolidate debt. In fact, many debt consolidation lenders charge an interest rate of anywhere from 6% up to 36%. So if you're on the higher end, you may end up paying more interest on your debt if you consolidate.

• Similar monthly payment amount: Depending on your credit score and other creditworthiness factors, you might not reduce your monthly payments by consolidating your debt. Therefore, if this is your main goal when combining two car loans, it may not be worth it.

• Combining collateral: Another downside to consolidating debt is that you're combining the collateral for the loan. This means that, for example, if you wrap your mortgage up in your debt consolidation loan, your home is now tied up in the debt consolidation loan, which can be risky if you default for any reason.