Car collateral loans are relatively easy to get approved for, even if you have bad credit. Collateral loans virtually power the entire American economy, allowing individuals and businesses access to funding that they would otherwise never be able to get. In recent years, car collateral loans have skyrocketed in popularity, especially here in Southern California where the housing crisis reached a fever pitch.
Getting a car loan when you have bad credit can be very difficult. Traditional lenders like banks and credit unions will often reject your application or offer you a loan with a very high interest rate. However, there is another option that can help you get affordable financing even with poor credit – using your car as collateral to secure the loan.
What Are Collateral Car Loans and How Do They Work?
Collateral loans are a type of secured loan where you put up an asset you own, like your car, as security for the loan. The lender can seize and sell your collateral if you default on the loan.
Car collateral loans, also known as auto equity loans or auto title loans, allow you to borrow money using the equity you’ve built up in your vehicle. Equity is the difference between what your car is currently worth and what you still owe on your auto loan.
For example, if your car is worth $15,000 but you still owe $5,000 on your auto loan, you have $10,000 in equity A lender may loan you up to or even over 100% of that equity amount, giving you access to funds while still keeping your vehicle
The loan amount, terms, and interest rates offered depend on factors like:
- Your credit score and history
- The equity and value of your car
- Your income and expenses
- The lender’s policies
Benefits of Using Your Car as Collateral
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Get approved more easily – Lenders view these as lower risk because your car secures the debt Having collateral can help compensate for issues like low credit scores or income
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Access larger loan amounts – You may be able to borrow more than with an unsecured personal loan since your vehicle guarantees the lender will get repaid.
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Lower interest rates – Secured loans tend to have lower rates, meaning reduced total costs. Rates can be under 10%, versus over 30% for some bad credit unsecured loans.
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Keep driving your car – You keep possession of your vehicle during the loan term as long as you stay current on payments.
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Fast funding – You may be able to get approved and receive funds in as little as a day. This makes collateral loans handy for covering emergency costs.
Potential Downsides to Be Aware Of
While car collateral loans provide unique advantages, they also come with risks to weigh:
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If you default, the lender can repossess your vehicle. Make sure you can afford the payments.
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Loan amounts are limited by your car’s value. Older or less valuable vehicles may not support large loans.
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Interest rates, while lower than unsecured loans, are often higher than auto loans from traditional lenders.
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There may be fees for origination, late payments, or early repayment. Ask for full details.
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Lenders may install GPS tracking devices on your vehicle while the loan is active.
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Some lenders have predatory practices like hidden fees or extremely high rates. Stick to reputable, transparent lenders.
Who Might Benefit from a Car Collateral Loan?
This type of financing is best suited for borrowers who:
- Need $1,000 to $50,000+ for expenses like medical bills, home repairs, or consolidating high-interest debt
- Have a paid-off or nearly paid-off vehicle with sufficient value and equity
- Have been denied for other loans or credit cards due to poor credit
- Can comfortably handle the required monthly payments
- Understand the risks of putting their vehicle up as collateral
Consumers with very low incomes or very poor credit may have trouble qualifying. Those with high-value cars can access larger loans, but should consider whether it’s worth the risk.
Where Can You Get a Car Collateral Loan?
Major banks and credit unions sometimes offer these, but online lenders and specialty finance companies are the most common sources. Unlike predatory title loan stores, they offer regulated loans with much better rates and terms.
Reputable options include:
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Auto Equity Loans – Offers installment loans up to $50k with fixed rates as low as 2.49%. No prepayment penalties.
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LendingTree – Network of lenders compete for your loan. Offers terms from 12-72 months and loan amounts up to $100k.
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CarLoan.com – Has lending partners providing installment loans for people with all credit types. Offers online approvals.
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LightStream – Provides fixed rate, fixed payment loans from $5,000 up to $100,000. Terms up to 84 months.
When researching lenders, compare interest rates, loan amounts, loan terms, fees, and eligibility criteria. Reading customer reviews can also help identify the best fit for your situation.
How to Apply for a Car Collateral Loan
The application process is similar across lenders but generally involves:
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Checking loan eligibility – Answer questions about your vehicle, income, expenses, and credit profile.
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Submitting documentation – Provide contact info, proof of ownership and insurance, pay stubs, and possibly bank statements.
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Authorizing a vehicle inspection – The lender will assess your car’s make, model, condition, mileage, and value.
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Accepting the loan terms – Carefully review the loan offer, including the amount, interest rate, fees, and payment schedule.
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Finalizing paperwork – Sign your loan agreement and related documents. A GPS tracker may be installed on your vehicle.
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Receiving your funds – The approved loan amount is disbursed to you, often via direct deposit within 1-3 days of approval.
Expect the entire process to take 1-5 days on average. Having documents and information ready can help expedite approval.
Tips for Getting the Best Car Collateral Loan Rate
Follow these guidelines when shopping for the lowest rate on a collateral auto loan:
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Check your credit – Good credit scores of 670+ qualify for the lowest rates. If your score is lower, wait and improve it first.
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Research estimated car value – Lenders provide higher loans for cars worth more. Know your vehicle’s current market value before applying.
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Gather paperwork – Having income, ownership, and insurance verification ready shortens the process.
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Compare offers from multiple lenders – Each will approve different loan amounts and offer different interest rates.
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Opt for shorter terms – You’ll pay less in interest with a 24 or 36 month term versus 60+ months.
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Make a larger down payment – Paying 10-20% or more upfront reduces the loan balance and interest costs.
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Enroll in autopay – Setting up automatic payments from your bank can score you a rate discount.
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Consider a cosigner – Adding a cosigner with good credit may help you qualify for more favorable rates.
Weighing Your Options Carefully
Collateral car loans can be an effective financing solution when you have bad credit but substantial vehicle equity. Make sure to run the numbers carefully and understand the risks prior to using your vehicle as loan security.
Thoroughly compare loan offers from reputable lenders and aim for the shortest term, lowest rate, and most affordable monthly payment you qualify for. Managing the loan responsibly by budgeting for payments and staying current will help you reach your goals while avoiding vehicle repossession.
What are Car Collateral Loans?
Car collateral loans are a fast and extremely easy way to get funds quickly, and they’re especially popular for people who have bad credit. Collateral loans can be obtained by borrowing against other personal collateral other than cars, but people are especially fond of car collateral loans because they’re easy, often allow you to keep possession of your vehicle while you’re paying back the loan, and typically don’t require credit checks. Title loans are issued based on your ability to repay the loan.
How Do Collateral Loans Work?
- Borrowers take out a loan from a lender, promising to pay back their loan in full and on time according to the official contract stipulations
- To protect the lender from losing everything if the borrower can’t repay their loan, the borrower must offer something of value as ‘collateral’ (in the case of auto collateral loans, the borrower’s car would be used as collateral)
- If the borrower defaults on the loan, the lender takes possession of whatever was offered as collateral
Southern California lenders often require collateral to help reduce their risk of lending money, especially after so many lenders were forced to write off bad loans after the recent financial crisis. By securing their loans with collateral, lenders are able to offer lower interest rates, less fees and other costs because there is a safety net attached to their lending.
Thus, collateral loans are extremely valuable to borrowers because they can save them tens of thousands of dollars in interest and other fees, and they’re valuable for the lenders because they provide insurance against losing all the money that is loaned if the borrower can’t pay their loan.
Some collateral loans require that the borrower actually hand over physical possession of the collateral (like loans at a pawn shop), while others don’t require turning anything over at all.
If you want to get a loan using your car as collateral, then you’ll likely have to provide your lender with the car’s title while you’re making loan repayments, but you might be able to keep possession of the actual car itself so that you can continue to use it like normal.
Four Examples of Collateral Loans:
1. Car Title Loans
Car collateral loans, sometimes referred to as “pink slip loans”, “car title loans” and “car equity loans” involve the borrower using the value of their car as collateral for a loan.
These are one of the most popular forms of collateral loans for people with bad credit because virtually anyone in possession of their vehicle’s pink slip will qualify for a car title loan. When you take out a loan using your car as collateral, you can be said to be borrowing money against the value of your car.
Some car collateral loan companies provide better deals to their customers than others, with lower interest rates, higher appraisal values, longer repayment terms and most importantly, the ability to continue using the car you used as collateral for your loan. Not all companies will let you keep driving your car that you used as collateral though (as there is some risk involved in that), so be sure that’s part of your contract if you decide to pursue getting a car collateral loan.
Major advantages to auto collateral loans include that they can be completed quickly, without the hassle of mountains of paperwork, long waiting periods or complicated legal processes. The big downside is that if you default on your loan, you’ll lose possession of your car.
If you live in California and want to take advantage of the unique value presented by car collateral loans, please call Car Capital Financial now at 1-888-500-9887. We can get you the money you need in as little as 30 minutes!
2. Home Mortgages
Probably the most popular form of loan with collateral at stake is a traditional mortgage. Mortgages sound complicated and seem like they’re different from the types of loans being offered by pawn shops, but in reality, they’re virtually identical. When you take out a mortgage on your house, what you’ve really done is received a collateral loan, using your house, apartment, or whatever property you’re attempting to pay off as collateral.
Virtually everyone depends on mortgages to buy their homes, meaning that just about everybody who’s ever purchased a house has received some form of a collateralized personal loan. When someone enters into a mortgage agreement with their bank or other lender, they sign a promissory note that shows their home is being used as security for the loan. If the borrower at any point in time can’t continue to make payments, and defaults on the loan, the lender then takes possession of the house from them as a form of payment for the unpaid loan.
If the borrower pays back the value of their loan in full, the bank returns the promissory note, leaving the borrower in full possession of their property. This is the way it’s supposed to work, but the recent housing crisis showed us all that there are times when the process breaks down, and badly.
3. Stocks and Bonds
Someone who is looking to receive a loan can also use assets like stocks and bonds as another form of collateral to receive a loan. If a borrower has stocks and bonds which are of significant value, they can often use them to receive a personal collateral loan, just like a mortgage would use a house, or a car collateral loan would require using a motor vehicle.
The recipient of the loan borrows money against the value of their stocks and bonds, promising to hand them over to the lender if they are unable to complete the repayment process. However, because stocks and bonds are monitored by the government, there are certain requirements and regulations that must be met prior to their use as collateral. For that reason, collateral loans using stocks and bonds can be more difficult to attain than collateral loans that rely on houses, cars or other possessions.
4. Equipment
Many Southern California companies and even some individuals receive collateral loans by borrowing against the value of business-related equipment that they own. This could include things like computers, office equipment, or even heavy machinery. Collateral loans can be offered on equipment as varied as microscopes, musical instruments, high-end computer hardware, or even oil rigs. When it comes to collateral loans, the sky is virtually the limit, as anything which can be appraised of value can be used to attain a collateral loan.
How to Get a Auto Loan with BAD CREDIT
FAQ
Can I get a loan with bad credit if I have collateral?
Can you get a car loan with under 500 credit score?
How to borrow money against your vehicle?
Do collateral loans check credit?
Can you get a loan with collateral if you have bad credit?
Generally, lenders accept cars as collateral only if you have a substantial amount of equity in your car. However, you may be able to get approved for a personal loan by providing collateral in other ways. Let’s dive into the best options to secure a loan with collateral if you have bad credit.
What are the different types of collateral loans for bad credit?
There are many types of collateral loans for bad credit, including: A title loan is a secured loan that uses your car as collateral. You’ll give the lender your car title in exchange for a lump sum of money upfront. The amount you receive will be based on 25% to 50% of your vehicle’s value.
Can a car be used as collateral for a loan?
The collateral you offer to the lender secures the loan if you are unable to repay the debt. Some more traditional forms of collateral are your home or vehicle. Generally, lenders accept cars as collateral only if you have a substantial amount of equity in your car.
Can I buy a car with a bad credit auto loan?
It’s not impossible to buy a car with a bad credit auto loan, but prepare for higher interest rates. There are no federal regulations that cap auto loan rates. Instead, individual states set their own limits.Even so, some states allow dealers to exceed interest rate caps as long as the dealer lets the state know in advance.