Can I use my car as collateral for the purpose of obtaining a loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by providing you with interactive tools and financial calculators that provide objective and original content. This allows users to conduct research and compare information at no cost to help you make informed financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this website are provided by companies that compensate us. This compensation may impact how and when products are featured on this site, including for instance, the order in which they appear in the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other home loan products. But this compensation does not influence the information we publish, or the reviews that appear on this website. We do not contain the universe of companies or financial deals that might be available to you. SHARE: mimagephotography/Shutterstock
3 minutes read. Published October 04, 2022
Written by Mia Taylor Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation's leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Written by Helen Wilbers Edited Helen Wilbers Edited by Helen Wilbers is editing for Bankrate from late 2022. He values transparent reporting that allows readers to successfully find deals and make the best choices for their finances. He specializes in small business and auto loans. The Bankrate promise
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Therefore, this compensation may impact how, where and in what order items appear within listing categories, except where prohibited by law. We also offer mortgage home equity, mortgage and other home loan products. Other elements, like our own website rules and whether or not a product is available within the area you reside in or is within your personal credit score may also influence the way and place products are listed on this site. We strive to offer the most diverse selection of products, Bankrate does not include details about every credit or financial product or service. If you require a loan but are having trouble getting a good deal or getting , you may require . One option is using your car as collateral. An auto equity loan allows you to get money based on what you own in your vehicle. While having a secured loan can result in an interest rate that is lower take into consideration the possible implications before signing off on this kind of loan. Do I have the option of using the car I own for loan collateral? Yes, you can utilize your vehicle as collateral for the loan. For secured loans require an asset the lender could take over if you not pay back the loan. The collateral can help you qualify for an loan in particular when you're carrying . It is more risky to take on the loan, so lenders may offer lower rates in exchange. It is necessary to have equity possession to be able to use it as collateral on a secured loan. Equity refers to the amount that is the value of the collateral and what you owe it. For example, if your car's resale price is $6,000 and that you're still in debt of $2,500 to your , you have $3,500 of equity in your vehicle. In this case, you'd have positive equity because your car is worth more than what you owe. The more equity you can have in the loan the lower your interest rate will probable to be. The most significant risk when using your car as collateral is that in the event of a default on the loan the bank or lender can take possession of your car to help repay your debt. Fees might also apply. If you're interested in using your car as collateral, you should check your lender's terms to learn whether it allows this type of collateral and how much equity you'll need. Benefits of using a vehicle as collateral two major advantages of securing a loan by using your car. It is easier to get the loan. Because of the additional security collateral lenders receive from secured loans generally are much easier to obtain than conventional personal loans. Lower interest rates. Secured loans generally offer lower rates of interest. The drawbacks of using your car as collateral Although using your vehicle as collateral is attractive however, there are risks with this kind of financing. The more likely you are to end up . There's a greater chance that you'll end up upside down -- or have equity that is negative- because you are adding an additional amount to the debt you owe. The possibility of repossession. It is a chance that is associated the use of your vehicle as collateral. If you do not pay back your loan, the lender can . Along with this, your credit score will be impacted negatively. Auto equity loan in contrast to. car title loan A loan, also known in the form of "pink-slip loan" or "title Pawn"" uses your car as the principal collateral for an loan. Car title loans allow you to borrow anywhere from 25 percent to 50% of the value of your vehicle in exchange for the transfer of title to your vehicle over to your lender for use as collateral. Car title loans are risky due to they have a loan term is typically very brief -- typically between 15 and 30 days- while the rate of interest is extremely high, ranging from 300 percent to 300 percent annual percentage rate. These types of loans differ from auto equity loans in a few ways. A car title loan is short-term loan in comparison against an auto equity loan which typically is accompanied by longer term repayments. Title loans tend to be much more expensive in comparison to car equity loans. They typically allow people to borrow smaller amounts than the auto equity loans. It is not possible to take out a car title loan if you owe money on your car. Due to the costly charges and interest rates, car title loans are able to decline very quickly if you cannot repay the debt in an incredibly short period of time. What other collaterals could you use to secure loans? Your car isn't the only type of collateral you can use for loans. Other types of collateral are: Your home. and use a percentage of the equity that you've earned in your home as an loan in the amount of a line or credit. Typically, banks allow qualified borrowers tap the maximum amount of 85 percent equity in their homes. Your savings account. They are also personal loans that make use of the savings accounts as collateral. Credit unions and banks often offer these. The bottom line Before using your car as collateral, double-check your other options. Are you able to find a trusted family relative willing and able to provide an in-short-term loan? Are you able to save up for the loan or come up with an additional source of income to pay for the cost? If so, a loan that uses your car as collateral is the best alternative, you can look around with several lenders. , repayment terms and associated charges to determine the loan that's the best fit.
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Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation's leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Written by Helen Wilbers Edited Helen Wilbers Edited by Helen Wilbers has been editing for Bankrate since the end of 2022. He values the clarity of reporting that can help readers easily get deals and make most informed decisions regarding their financial situation. He is a specialist in auto and small business loans. Related articles Auto Loans 4 min read January 13 2023 Home Equity 3 min read Dec 12 2022 Loans 4 min read September 30 2022 Automobile Loans 5 min read June 22 2022

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