When you consolidate your loans, you are simply using a new loan to pay off old ones. The single monthly payment for the new loan then takes the place of the multiple loans you paid off. When you consolidate your debts, you do so under the terms of the new loan. Performing any activity as a credit user, including buying a car with a car loan, will affect your loan consolidation, but the impact differs from situation to situation.
Buying the Car
How you purchase your new car affects whether the purchase impacts your credit report, your credit score and other loans you have or are considering. If you buy a car in cash, that is, without getting a car loan, you do not affect your credit because you are not taking out a new loan. If you do apply for a car loan, however, even the application has an impact on your credit report. Once you get the loan and start making payments, these actions further impact your credit report and score.
Buying Before Consolidation
A loan consolidation is when you take out a new loan and use the funds you get to pay off other loans. If you bought a new car prior to applying for a consolidation loan, you might be able to use the consolidation funds to pay off the car loan. When you apply, however, the terms of the car loan impact whether or not you get the consolidation loan, as well as the terms under which the consolidation loan is offered.
Buying After Consolidation
If you consolidate your loans and then buy a new car with a car loan, your debt consolidation will impact your car loan terms. Typically, the less debt you have and the higher credit score you have, the better the terms of your new car loan will be. Because you already received your debt consolidation loan prior to your car purchase, that loan will appear on your credit report. Your car loan lender will know you have the loan and may offer you a loan with a higher interest because of it.
Other Considerations
The effect any loan has on your other credit instruments varies depending on your credit history, your current loans their terms and conditions. A creditor, for example, may increase your consolidation loan interest rates if you go out and get a new car loan after the consolidation loan. Likewise, your car loan lender may increase your car loan rates if you get a new debt consolidation loan. However, someone with a strong credit history and excellent credit score may not experience such increases.
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