Get Cash Quick With A Collateral Loan On Your Vehicle

Taking out a loan against your vehicle can be a quick way to get cash when you need it. Whether you call it an auto equity loan, car title loan, or collateral loan on your vehicle, borrowing against the value of your car comes with risks and benefits. In this comprehensive guide, we’ll explain everything you need to know about using your car as collateral for a loan.

What Is A Collateral Loan On A Vehicle?

A collateral loan on a vehicle uses your car as security for the loan. The lender places a lien on the title, meaning they have a legal right to repossess and sell your car if you stop making payments. There are two main types of auto collateral loans:

• Auto Equity Loans – These allow you to borrow against the equity or value you have built up in your vehicle. Your car doesn’t need to be fully paid off to qualify.

• Car Title Loans – Also called pink slip loans, these require you to own your vehicle outright with no existing car loan. You borrow against a percentage of the car’s total value.

With both loan types, the lender determines how much you can borrow based on factors like your car’s value, its condition and mileage, and your credit score.

When Is A Collateral Auto Loan A Good Option?

Taking out a loan against your car can provide fast access to cash, often with minimal credit checks. This type of financing may make sense if:

• You have an emergency expense and need money quickly
• You have equity built up in your vehicle
• Your credit score is poor and prevents other loan options
• The interest rate is lower than alternatives like payday loans or credit cards

However, because your vehicle is at risk if you default, a collateral auto loan should not be your first choice Consider all alternatives before moving forward

Pros And Cons Of Collateral Car Loans

Like any financial product collateral loans on your car have both advantages and disadvantages to weigh

Pros

• Fast access to cash, sometimes in as little as 24 hours
• May require minimal credit checks
• Lower rates than unsecured options like personal loans or credit cards
• Long repayment terms available up to 5 years

Cons

• Your car could be repossessed if you miss payments
• Higher rates than secured loans like auto refinancing
• Loan amounts limited to a percentage of your car’s value
• Requires comprehensive insurance coverage

Always compare multiple lenders to find the best rates and terms that fit your budget and financial situation.

How Much Can You Borrow With A Car Collateral Loan?

The amount you can borrow depends on factors specific to your vehicle:

• Car’s Value – Lenders assess your car’s current market value based on make, model, year, mileage, and condition. The higher the value, the more you may qualify to borrow.

• Existing Loan Balance – For auto equity loans, lenders look at how much you still owe on your current car financing vs. the car’s value to determine the equity available.

• Loan-to-Value Ratio – Most lenders cap auto collateral loans at 100% to 125% of your available equity. With $5,000 in equity, you may borrow up to $6,250.

• Credit Score – While credit isn’t always a major factor, it can impact the amount you qualify for and your interest rate. Those with excellent credit often get the best terms.

Use online tools to estimate your car’s value before applying so you understand how much equity you have to leverage.

What Interest Rates And Fees Are Charged?

Interest rates and fees vary significantly by lender. Generally, you’ll pay higher rates than a traditional auto loan or refinance. Here are a few factors that impact your rate:

• Credit Score – Borrowers with higher credit scores qualify for lower interest rates, often as low as 3% to 6%. Subprime borrowers pay up to 25%.

• Loan Term – Shorter loan terms often have lower rates. A 12-month loan could have a 10% rate vs. 20% for a 60-month term.

• Loan Type – Auto equity loans tend to have lower rates than car title loans. Lenders view them as less risky since your original car loan remains in place.

• Origination Fees – Some lenders charge 1% to 5% of the loan amount in upfront fees. Always compare out the door costs.

Look for lenders like credit unions and online lenders that offer competitive rates and minimal fees.

Are Collateral Car Loans Easy To Qualify For?

The lending standards for collateral auto loans are generally less stringent than traditional financing:

• Credit Score Requirements – Most lenders accept credit scores as low as 500, and some have no minimum score. Your rate will be higher with poor credit.

• Proof of Income – Stated income loans don’t require income verification. But providing pay stubs or tax returns can help you qualify for better terms.

• Co-Signers – If your credit doesn’t meet requirements, adding a co-signer with good credit can improve your chances.

• Bankruptcy – Lenders often approve borrowers who have filed bankruptcy provided sufficient time has passed since discharge.

• Car Requirements – Your vehicle must be fully paid off for a car title loan. Auto equity loans allow existing financing.

Overall, collateral car loans are relatively easy to qualify for compared to other personal loan products, especially for those with less-than-perfect credit histories.

How And Where To Apply For A Car Collateral Loan

Follow these steps when seeking a collateral auto loan:

1. Check your credit score using a free service so you understand where you stand. This impacts the rates and amount you’ll qualify for.

2. Calculate your car’s value using Kelley Blue Book or another valuation source to estimate your available equity.

3. Compare lender rates online to find the most competitive options. Look at total costs, not just interest rates.

4. Check lender eligibility requirements regarding minimum car value, mileage, age restrictions, and more. Make sure you meet these.

5. Apply online for loan pre-approval and offers. Provide details on you, your income, and your car.

6. Compare loan offers side-by-side and select the best lender for your needs.

7. Provide required documents to verify your identity, income, and insurance coverage.

8. Sign loan agreement stipulating the amount, terms, interest rate, and payment details. You’ll hand over your title.

9. Receive loan funds via direct deposit, usually within one business day of finalizing the paperwork.

With some upfront research, finding the right lender can provide fast cash using the equity in your paid-off vehicle when you need it.

Alternatives To Auto Collateral Loans

While collateral car loans offer easy access to cash, they put your vehicle at risk and can be expensive over the long run. Before borrowing against your car, explore some other options:

• Personal Loans – Unsecured loans have higher rates but don’t use your car as collateral. Shop for the lowest rates your credit allows.

• Credit Cards – Many cards offer 0% intro APR promotions you could leverage for short-term needs. Compare cards to find the best offers.

• Auto Refinancing – Refinancing your existing car loan could lower your payments and interest costs. You may also be able to take cash out.

• Home Equity Loan – Tap available equity in your home at lower rates than auto collateral loans and with better consumer protections.

• P2P Lending – Borrow from individual investors rather than banks or credit unions. Rates for prime borrowers start around 7%.

• Borrow From Family – If possible, ask relatives for a low or no interest loan. Set clear repayment terms to avoid issues.

• Credit Union Payday Loans – Many credit unions now offer payday alternative loans at lower rates and with longer terms.

• Negotiate Bill Payments – Contact creditors directly to explain your situation and request delayed or alternative payment arrangements.

The bottom line? A collateral loan on your car should not be your first choice when you need cash fast. But used judiciously and with proper protections in place, it can provide funds in a financial pinch if you have equity in your vehicle.