Buying a car on consolidated credit is possible, but doing so without additional credit headache is another matter altogether. The best option would be waiting until all debt is discharged before buying a car. However, some borrowers, for whatever reasons, will not heed this warning. Thus, because there is more than one way to consolidate credit, there are a few important matters to consider before heading to the car lot.
Function
Consolidated credit is defined as debt combined into one large debt that is reduced through monthly payments. It is achieved either through the use of a credit consolidation company that acts as a third party payment collection or a loan borrowed to pay all of the individual debts to make one. The latter is accomplished through home equity and personal loans. It is most conducive to answering this question. A person going through a credit consolidation company would not be bound by any rules. However there are some considerations for buying a car using this method of credit consolidation.
Consolidation Loan
Consolidated credit achieved through equity or personal loans allows the borrower to pay off his debts. This leaves one loan payment each month that serves to pay off the transferred balances of those debts. On the person's credit report, the old debts show up as paid, and the one debt left on the credit as current. This can create a credit rating good enough to purchase a car. Some borrow enough to cover their debts and to buy a car. This option, however, is at the sole discretion of the lender. It requires a substantial amount of equity, strong credit history and income.
Credit Consolidation Program
Consolidated credit through a program may or may not create credit good enough to finance a car. Not all credit consolidation companies pay the old debts up front, allowing the client to have clear credit while paying back the consolidated debt. Instead, they usually collect a monthly fee, which is placed in an escrow account, minus a maintenance fee. Then, once enough money has accumulated in escrow, the credit consolidation company pays the old debt. With the fees required for such a program and the likelihood to complete this type of program very slim, a finance company may not find such a borrower attractive.
The Wise Choice
The smartest option is to wait until the debt is completely paid off, including the debt consolidation loan. However, borrowers eager to get into that new car may not wait. A second best choice, therefore, would be going the credit consolidation loan route. Try to get enough to cover the new car if possible.
The Other Choice
A credit counseling program is not a good option when trying to buy a car on consolidated credit because when the old debts are paid off the program ends.
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