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Old 06-01-2018, 08:12 PM   #1 (permalink)
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Question Can I use an auto loan to pay for something else?

I paid a huge chunk on my mortgage which has 24 years left on it. I paid $70k of it off. I now only owe $10k and my mortgage interest rate is 6%. I was considering getting a 2 or 3 year personal loan to pay the house off now as I have excellent credit and utilize a lower interest rather than try to pay off the remaining $10k at 6% in that same period of time.

So an auto loan I'm looking at is only 3.09% interest for 2 or 3 year term. My other option is to say it's for home improvement which is 4.99%. Can I just lie and say it's for auto and use it to write my final mortgage check? Or is that money secured to only pay a dealership and doesn't go into my checking account?

My last personal loan was used to pay off my wife's CC debt but I told the bank that it was for home improvement. It didn't seem to matter but the interest rates they use are based on what you are going to do with it which seems kind of stupid if I can lie and use it for anything anyway.
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Old 06-03-2018, 03:11 PM   #2 (permalink)
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Default Re: Can I use an auto loan to pay for something else?

Quote:
Originally Posted by Dgeneration View Post
I paid a huge chunk on my mortgage which has 24 years left on it. I paid $70k of it off. I now only owe $10k and my mortgage interest rate is 6%. I was considering getting a 2 or 3 year personal loan to pay the house off now as I have excellent credit and utilize a lower interest rather than try to pay off the remaining $10k at 6% in that same period of time.

So an auto loan I'm looking at is only 3.09% interest for 2 or 3 year term. My other option is to say it's for home improvement which is 4.99%. Can I just lie and say it's for auto and use it to write my final mortgage check? Or is that money secured to only pay a dealership and doesn't go into my checking account?

My last personal loan was used to pay off my wife's CC debt but I told the bank that it was for home improvement. It didn't seem to matter but the interest rates they use are based on what you are going to do with it which seems kind of stupid if I can lie and use it for anything anyway.
I'm from the UK and not the US, but here when doing a loan application, if you select vehicle it reduces your interest rate because you're basically telling the bank you are buying something of at least the value of the loan, so if you default on the repayments, they can come and reposes the vehicle that you bought. However, I don't think technically it's a "secured" loan, they still class it as unsecured. But I might be wrong, I never read the fine print.

My assumption would be they wont check or ask if you have actually used it to buy a vehicle, but if you default and can't make repayments and then they find they can't repossess the vehicle because you never bought one, you might be in even more trouble. I would also guess that technically it is against their T&C's to say you're using it for an auto purchase, and then not actually use it for that.

But it sounds like you have your finances under control so in reality they're pretty unlikely to find out and/or care.

I'm not an expert though, there are a lot of very knowledgable people over at reddit.com/r/personalfinance - if you ask there, you will get a more qualified answer.
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Old 06-03-2018, 07:20 PM   #3 (permalink)
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Default Re: Can I use an auto loan to pay for something else?

It 100% depends on the lender. Most will require proof of full coverage insurance for an auto loan just like if you were to finance a vehicle from a dealer. The reason being is what he said above, and if you total the car they can take the insurance money and not be down on the money. If I tried to get a loan for a classic Mustang I planned to daily I would get declined for this reason.

It varies from area to area and even lender to lender. I suppose it just depends on the fine print and who you go to. If they don't require proof of anything then I don't see why not as long as you know for sure you can repay that loan.
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