Consolidation loan secured by car feedback

[Anonymous]

Hi all,

Just wanted some quick feedback on my wife and I's situation.

We have two credit cards, both almost completely maxed out.  Citibank Simplicity at 14.99% and Chase Sapphire at 7% roughly.  We also have a Best Buy card with $974 on it near reaching the end of the 0% period.

We wanted to take out a consolidation loan to at least consolidate the Citi & Best Buy card, and get them off the compounding interest into a fixed rate loan with a lower interest rate.  We applied at one credit union for an unsecured loan at 6.99%, but were declined because of my wife's high DTI, and a couple dings on my credit from 2007.  Her credit score is around a 715, and my is an EQ 679.  We own a home with "some" equity, but not enough to qualify right now for a loan (maybe another year or two).  My wife only has about 4200 in a 403B that she doesn't want to touch, nor is it even enough to cover half of one card.

So, we applied for a loan at a different credit union, Baxter, and they offered us a 60 month loan, secured by my wife's car title (2007 car with 68K milage), at a rate of 2.79%.  I know the inherent risks of securing a loan with your car title, however we could afford another car payment if we needed, and in lieu of the trade in, could put a little less down.  The interest rate and savings with this loan as opposed to paying the card off at 14.99 feels like a no-brainer - but just wanted to get some feedback from others....

Thanks!

[myjourney]

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@Anonymous wrote:

Hi all,

Just wanted some quick feedback on my wife and I's situation.

We have two credit cards, both almost completely maxed out.  Citibank Simplicity at 14.99% and Chase Sapphire at 7% roughly.  We also have a Best Buy card with $974 on it near reaching the end of the 0% period.

We wanted to take out a consolidation loan to at least consolidate the Citi & Best Buy card, and get them off the compounding interest into a fixed rate loan with a lower interest rate.  We applied at one credit union for an unsecured loan at 6.99%, but were declined because of my wife's high DTI, and a couple dings on my credit from 2007.  Her credit score is around a 715, and my is an EQ 679.  We own a home with "some" equity, but not enough to qualify right now for a loan (maybe another year or two).  My wife only has about 4200 in a 403B that she doesn't want to touch, nor is it even enough to cover half of one card.

So, we applied for a loan at a different credit union, Baxter, and they offered us a 60 month loan, secured by my wife's car title (2007 car with 68K milage), at a rate of 2.79%.  I know the inherent risks of securing a loan with your car title, however we could afford another car payment if we needed, and in lieu of the trade in, could put a little less down.  The interest rate and savings with this loan as opposed to paying the card off at 14.99 feels like a no-brainer - but just wanted to get some feedback from others....

Thanks!

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IMO I would seek other methods only for the reason the car is 6 years old now and you're thinking about another 5 years to payoff a title backed loan..

If you need a car within that time frame you have no equity for a trade in and will still owe the loan minus early payoff....

However if you think you can payoff loan in say 3 years it might be worth it. just to many variables tho

Best wishes 

[bettercreditguy1]

I would not mortage or tie up the automobile. Worse case scenario, what would happen if you had an automobile accident? You would have zero equity, need a new/different car, and still owe the loan balance. Not wise in my book. Personally, I would use the snow ball effect. Pay off the zero percent interest account FIRST, since it is nearing maturity. Then I would take the monies and apply to the highest interest account you have, then your last accounts. It appears to me that you do not need any more payments or debt at this time. Adding either would be a disaster should one detail not go perfect.

[Anonymous]

Thanks for the feedback! 

If we had other options, I normally would never consider a loan secured by a vehicle, however with the 2.79% rate we'd be paying $931 in interest over a 4 year period.  With our current rate on the credit card, it would take us over 6 years, and over $6000 in interest to pay it off.

I did leave a couple details out - the credit union offers "insurance" for a one time fee of $225.  In the event you total the car, or it is stolen, they cover whatever your auto insurer does not, and pay off the remainder of the loan.  Additionally, they offer  "warranty" coverage (for a monthly fee) that covers a portion of your cost in the event of mechanical failure. 

Even with paying this warranty coverage, we'd still save $3000-$4000 by doing it this way because of how high the interest rate is.  We are still considering, but obviously it would be prudent to take the insurance coverage.

Thanks again to everyone who responded!

[Booner72]

We just did this but we got GAP insurance, so if I wreck my car it will be paid off. We also consolidated our cc's onto one platinum card through them. (The car backed loan was the other 1/2 of the money we need for our roof). My car is a low mile Subaru that I plan to drive forever, and they still loaned me money within the value of the car. They wanted to do this for my husband's truck, but his is a 2002 with nearly 200K miles. That would have been a dumb move.

you did fine, IMO.