This is not a trick question, we promise.
Most people will insist that your car loses value as soon as it’s driven off the lot to the nearest fast food drive-thru just before carting the kids off to soccer practice. There is truth in that.
However, it’s also true that there may be enough value in your car to help pay off a few credit card balances.
How do you go about finding out if there is any equity or value in your vehicle?
Equity is the amount your car is worth minus how much you owe on your auto loan. If you have paid off your loan, the value of the vehicle is the amount of equity you have.
The most painless way to get an estimated value of your car is to contact your financial institution to obtain an updated value. You can also use one of the many online resources such as NADA.com to determine the current value of your car.
If there is equity in your car, you can refinance your auto loan and use the equity to pay off other debt.
Once you have your value, talk to your lender to find out the pay-off amount of your loan. Your loan officer may tell you that you have a cool few grand to spare. Then the fun begins. Think of it as one of those fabulous coupons you get in the mail for buy one, get one half off; paying off one loan and then paying off another one for half the cost.
For example, let’s say you’re still paying off your kids’ soccer gear on your credit card at 22% (the average interest rate on most major credit cards). Do you really want to be paying interest on cleats that will inevitably end up at the Salvation Army next season? Didn’t think so. With the few thousand dollars you have in value with your vehicle, you could pay off the cleats, shin guards, and more by taking out a new auto loan and paying off the credit card balance.
The best part? The rate could be at least 10% less than what you’re paying on your card, depending on your credit score – hence the “buy one, get one half off” deal. If you fall into the category of the 55% of consumers that have a credit score in the range of 700 and 839 (according to Fair Isaac Corporation for TransUnion) your rate could be even lower!
How much cash can you dig out of your car and how many credit cards can you pay off with it? It’s worth looking into.
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