Did you know that 282 million people in this country own a car? For many people, a car is the first real type of investment they commit to. Unfortunately, this major purchase often drains people of money that might be spent on other types of loans.
If you can’t get a loan, but you own a car, then there might be a solution. It involves using your car as collateral when applying for these types of loans. If you want to learn more about these collateral types, then you’re in the right place.
In this article, we’ll teach you everything you need to know about cars as collateral for loans. That way, you can decide if it’s the right decision for you. Let’s get started!
Can You Use Your Car As Collateral for a Loan?
The answer is yes, you can put up your car for collateral when applying for a loan. However, exactly what does this mean. Essentially, you’re putting up your car as security in case you can’t make the payments required of the loan.
That means that if you default on your payments, then your lender has the right to take your car and sell it for financial compensation. However, keep in mind that to put your car up for collateral you need to have equity on it. What’s equity?
It’s the difference between the worth of your car and the amount of money that you’ve paid for it so far. So, let’s say your car is worth $10,000 and you’ve paid $6,000. That means that you have $6,000 worth of equity.
Keep in mind that there are some frequent complications when it comes to putting your car up collateral. First, there’s the fact that cars depreciate incredibly quickly. As such, your loan can be more expensive than the car’s worth. On top of this, many lenders won’t accept cars that are older than five to seven years old.
What Are the Benefits of Using Your Car as Collateral?
Multiple benefits come with putting your car up as collateral for a loan. First, you’re likely to have a much easier application process. Most of the time, your application will be accepted within minutes.
By putting up your car as collateral you’re also able to access more expensive loans. This is great if you want a big purchase, like a house. You also get fast cash. No more waiting weeks or even months for a check to come through.
Plus, you get to keep driving your car. There’s no need to sell your vehicle to make payments. Instead, you can profit from the equity all while still driving it. Finally, you don’t need great credit.
Since you’re offering something up as collateral there’s a good chance that you will get accepted even if you have a less than optimal credit score.
What Types of Loans Can You Apply for With Your Car as Collateral?
There are multiple types of loans that you can apply to with your car as collateral. The first is a secured personal loan. You can use these loans on anything and they come with a lower interest rate than credit cards.
Next, there’s a car title loan. This is a loan that’s specifically designed for people putting their cars up as collateral. Typically, they require you to own the car completely. They then allow you to borrow up to 50% of the car’s value.
Usually, you need to pay this back within a month. If you’re paying off an existing loan on your car, then you might want to consider cashback auto refinance. This refinances your existing loan into a larger loan.
It also gives you a portion of the cashback in equity. Just keep in mind that this will result in more debt.
What Are Other Collateral Types?
It’s important to think hard before putting up your car as collateral. This is especially true if you rely on it daily for transport to work. There are always other options for things that you can put up as collateral.
And while not all of these options will work for everyone, there might be a better alternative available. Here are some of the other things that you can use as collateral besides a car:
- Cash in your savings account
- Precious metals
- Stocks or bonds
- Your home
- A life insurance policy with a cash value
How to Use Your Car as Collateral
So, you’ve decided that using your car as collateral is the best option for your needs. So, what’s the next step? Now, you need to find a lender that will offer you a loan in exchange for collateral on your car.
Sadly, this can be harder than you might think. Most larger banks don’t accept your car as collateral when giving out loans. However, the good news is that there are a variety of online credit lenders and credit unions that do.
If you need a recommendation, then we suggest Borrow Against Your Car. They will beat any interest rate by 5%. As such, you’ll be hard-pressed to find a better lender out there.
Want More Content? Keep Reading
We hope this article helped show you how cars can be one of the more useful collateral types. However, it’s important to remember that there’s also an element of risk when you put your car up for collateral.
At the end of the day, you need to be prepared to lose anything you put up in the case of an emergency. As such, if you aren’t willing to do that, then you should consider other types of financing.
Did you enjoy this article? If the answer is yes, then you’re in the right place. Keep exploring to find more topics that you’re sure to love.