What if I used my car as collateral for the purpose of obtaining a loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare data for free to help you make informed financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site come from companies who pay us. This compensation can affect the way and where products appear on this site, including, for example, the order in which they may appear in the listing categories in the event that they are not permitted by law. This applies to our mortgage home equity, mortgage and other products for home loans. However, this compensation will have no impact on the information we provide, or the reviews that you see on this site. We do not include the entire universe of businesses or financial offerings that could be available to you. SHARE: mimagephotography/Shutterstock
3 min 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. Edited by Helen Wilbers Edited by Helen Wilbers has been editing for Bankrate since the end of 2022. He is a firm believer in the clarity of reporting that can help readers successfully find deals and make the best decisions for their financials. He specializes in auto and small business loans. The Bankrate promise
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If you have questions about money. Bankrate has answers. Our experts have helped you understand your money for more than four years. We continually strive to provide consumers with the expert guidance and the tools necessary to make it through life’s financial journey. Bankrate adheres to a strict code of conduct , which means you can trust that our content is honest and accurate. Our award-winning editors, reporters and editors provide honest and trustworthy content to help you make the best financial decisions. The content we create by our editorial team is factual, objective, and not influenced from our advertising. We’re honest regarding how we’re able to bring quality content, competitive rates, and useful tools to our customers by explaining how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated for the placement of sponsored products and, services, or through you clicking specific links on our site. This compensation could affect the way, location and in what order items appear within listing categories, except where prohibited by law. We also offer mortgage or home equity products, as well as other home lending products. Other elements, like our own proprietary website rules and whether a product is available in your area or at your self-selected credit score range can also impact how and where products appear on this website. We strive to offer an array of offers, Bankrate does not include information about each credit or financial product or service. If you require a loan but are having trouble finding a low rate or getting , you may have to look to . One option is to use your car as collateral. A car equity loan allows you to get money based on the worth of your vehicle. While secured loan can result in a lower interest rate, consider the potential consequences before signing off on this kind of loan. What can I do with my car to serve as loan collateral? Yes, you can utilize your vehicle as collateral for a loan. For secured loans need an asset that the lender can repossess should you fail to repay the loan. Collateral may help you qualify for an loan, particularly when you’re carrying . It is more risky to take on the loan which is why lenders could offer lower rates in exchange. You must have equity in your possession to be able to use it as collateral for a secured loan. The equity is defined as the sum of the amount of your collateral as well as what you still have to pay. In this case, if, for instance, your car’s resale price is $6,000, but you still owe $2,500 to your , you have $3,500 of equity in your vehicle. In this case you’d be able to claim equity positive due to the fact that your car is worth more than what you have to pay. The more equity you can have in the loan, the lower the interest rate will likely to be. The most significant risk when using your car as collateral is that if you default on the loan the bank or lender may be able to take possession of your vehicle to assist in repaying the loan. There could be fees as well. If you’re interested in using your vehicle as collateral, check your lender’s terms to learn whether it allows this type of collateral, and the amount of equity you’ll require. Benefits of using your car as collateral There are two main benefits to getting an loan using your car. Easy to get a loan. Due to the added security lenders gain from collateral secured loans tend to be much simpler to get than traditional personal loans. Lower interest rates. Secured loans typically offer lower rates of interest. There are disadvantages to using a car as collateral . Although using your vehicle as collateral can be attractive however, there are risks with this type of financing. It is more likely to result in . There is an added likelihood that you’ll end up upside down — or have equity that is negative- because you are adding an additional amount to the debt you already owe. The possibility of repossession. This is a huge risk associated with using your vehicle as collateral. If you do not pay back your loan the lender may be held responsible . Along with this your credit score could be negatively impacted. Auto equity loan vs. car title loan A , also known by the name of a “pink-slip loan” or “title pawn” uses your car as the principal collateral for a loan. Car title loans allow for borrowing anywhere between 25 to 50 percent of the worth of your vehicle in exchange for turning the title of your car in the hands of your lender for use as collateral. Car title loans are risky due to the loan term is typically extremely short, typically between 15 and 30 days- while the rate of interest is extremely high, ranging from 300 percent to 300 percent APR. These kinds of loans differ from auto equity loans in a variety of ways. The car title loan is a short-term loan in comparison against an auto equity loan that typically is accompanied by longer term repayments. Car title loans are often much more expensive as compared to auto equity loans. They generally allow individuals to borrow less as compared to the auto equity loans. You are not able to get a car title loan in the event that you owe money on your vehicle. Due to the expensive charges and interest rates, car title loans are able to decline rapidly if you fail to pay the debt back in an incredibly short period of time. What other collaterals are you able to use for loans? The car isn’t the only kind of collateral you could use to get loans. Other kinds of collateral includeyour home. and use a percentage of the equity that you’ve earned in your property as an loan in the amount of a line or credit. Typically, banks allow the qualified borrowers access up to 85 percent of their equity in their homes. The savings accounts. They are also personal loans that utilize the savings accounts as collateral. Credit unions and banks typically offer these. The bottom line Before using your car as collateral, make sure you check your alternatives. Are you able to find a trusted family member willing and able to give you a short-term loan? Do you have the time to save enough money to cover the cost or locate an additional source of income to pay for it? If a loan that uses your car as collateral is your best alternative, you can look around with several lenders. The repayment terms, repayment terms and the associated fees to find the loan which is the most suitable for your needs.
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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. Edited by Helen Wilbers Edited by Helen Wilbers Editing for Bankrate from late 2022. He is a firm believer in the clarity of reporting that can help readers easily land deals and make the best choices for their money. He is a specialist in small and auto loans. Related articles Auto Loans 4 minutes read Jan 13 2023 Home Equity 3 min read Dec 12 2022 Loans 4 min read September 30 2022. Auto Loans 5 minutes read June 22 2022
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