Need some fast cash but don’t want to damage your credit score with a high-interest payday loan or credit card cash advance? Collateral loans that use your car or motorcycle as security could be the solution. I found plenty of lenders offering collateral loans on vehicles near me, so keep reading to learn more about how these loans work and where to find them.
What Are Collateral Loans on Vehicles?
Collateral loans are a type of secured loan where you put up something valuable as security for the loan Common collateral includes cars, trucks, boats, motorcycles, RVs, and other vehicles.
Here’s how it works
- You bring your vehicle to a title loan store or pawn shop and they appraise its value
- You qualify to borrow a percentage of the vehicle’s value, often around 50%
- The lender places a lien on the vehicle title during the loan term
- You make monthly payments on the loan, plus interest and fees
- When the loan is paid off, the lien is removed and you get clear title back
The main advantage of a collateral auto loan over a traditional personal loan is that the lender has your vehicle as security. This lowers their risk so they can lend to borrowers with bad credit or low incomes. Interest rates may also be lower compared to unsecured loan options.
On the other hand, failure to repay the loan means the lender can repossess and sell your vehicle to get their money back. Be sure you can afford the payments before taking out a car title loan!
Who Offers Collateral Loans Against Vehicles?
There are several options for collateral loans on vehicles near me. Here are some of the main sources to check first:
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Banks and Credit Unions: Many banks and credit unions make auto equity loans, which let you borrow against the value of your paid-off car. However, they usually require good credit.
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Title Loan Companies: Title lenders focus on collateral auto loans for people with poor credit. They have stores statewide and offer quick approvals. However, their rates are high.
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Pawn Shops: Local pawn shops make small collateral loans with vehicles, jewelry or other valuables used as security. This option is easy but expensive.
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Online Lenders: Websites like CarEquityLoans.com allow you to apply for a car title loan online and get funds fast after approval. Rates may be better than local stores.
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Auto Dealers: Some buy here pay here dealers make in-house loans against cars bought from their dealership. This can simplify financing but rates are higher.
I recommend shopping rates from several sources before choosing where to get a vehicle collateral loan. Making multiple applications in a short period won’t hurt your credit score.
What Are the Requirements for These Loans?
To qualify for a loan against your car, motorcycle, or other vehicle, there are a few basic requirements:
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You must be the registered owner of the vehicle used as collateral.
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The vehicle has to be paid off or have very little owed on it. Lenders want to see substantial equity.
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The vehicle must be in good condition. Damaged or totaled vehicles usually can’t be used.
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You need a source of income and in some cases, a bank account. Proof of both may be required.
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Minimum age requirements are typically 18 or 21 years old.
Provided you meet these requirements, have the title, and your car is worth enough money, getting approved is usually quick and easy. Some title lenders promise approvals in as little as 15 minutes!
How Much Cash Can You Get?
The amount you can borrow against a vehicle depends on its appraised value and the lender’s policies. Here are some general guidelines on loan amounts:
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50% of value: Most lenders will loan around 50% of the vehicle’s wholesale value. So a car worth $10,000 could get you a $5,000 loan.
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$2,500 minimum: Even if your car is only worth a few hundred dollars, lenders will often loan a minimum of $2,500. This covers their costs.
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$50,000 maximum: Title loan amounts top out around $50,000 even if your vehicle is worth more. Above this amount, a home equity loan may be a better option.
Remember, only the lender’s estimated value counts, not what you paid for the vehicle or think it’s worth. Luxury cars usually won’t qualify for maximum amounts either due to their resale value uncertainty.
What Are the Costs and Fees?
Collateral loans against vehicles do come with costs in addition to principal and interest repayment. Here are some common fees to expect:
- Origination fee of 1% to 5% of the loan amount
- Documentation or processing fees of $25 to $100
- Lien fees of $10 to $30 to secure interest in the vehicle
- Late fees around 5% to 10% of the payment amount
- Returned payment fees of $20 to $40 for bounced checks or failed ACH withdrawals
- Repossession fees of $200 to $500+ if the vehicle is repossessed
You may also be required to install a vehicle GPS tracker so the lender can locate the car if you default. These typically cost around $200.
Interest rates on collateral auto loans range from 20% to 40% in most states. Ensure you can afford the payment along with all fees before borrowing.
Can You Get a Loan Against Any Vehicle?
Most passenger vehicles like cars, trucks, SUVs, and vans that are properly titled and registered can be used for collateral loans. Some other vehicles that lenders may accept include:
- Motorcycles, dirt bikes, ATVs, and UTVs
- RVs and motorhomes
- Classic cars
- Exotic cars like Lamborghinis and Ferraris
- Commercial work vans and trucks
- Box trucks and food trucks
- Tractors, harvesters, and farming equipment
Recreational boats, jet skis, snowmobiles, and trailers may also qualify at some lenders.
The vehicle has to be fully paid off, or very close to it, to have enough equity for a loan. If you still owe money on it, a cash-out auto loan refinance may be an alternative option.
How Long Do You Have to Repay the Loan?
Collateral loan terms are usually much shorter than a standard personal bank loan or auto loan. Some common repayment terms include:
- 30-day loans: The entire balance must be repaid after 30 days.
- 2 to 6 month loans: Short repayment terms of several months.
- 1-year loans: The maximum loan term allowed in some states.
- 2 to 4 year loans: Less common for auto title loans but possible in some cases.
Because of the short terms, these loans are best for temporary cash needs, not long-term financing. You typically cannot renew or extend the loan – it must be paid in full by the due date. Carefully consider whether you can do that before borrowing.
Can These Loans Help Build Your Credit?
Unfortunately, most title lenders and pawn shops don’t report your loan payments to the major credit bureaus. So collateral loans on their own won’t help improve your credit score like a bank loan would.
However, timely repayment of a car title loan shows you’re capable of managing debt responsibly. In that sense, it can help prepare you for credit building products like secured credit cards down the road.
If your loan is with a bank or credit union, make sure to ask whether they report to the credit bureaus. If so, staying current on payments can provide a nice credit boost that helps you qualify for lower rates in the future.
How to Get the Best Rate on Your Loan
Because interest rates on collateral loans can vary dramatically, it pays to shop around for the lowest rate offer. Here are some tips:
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Check rates from national online lenders as they tend to be more competitive.
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Ask about discounts for setting up autopay from a bank account to make automated payments. This saves the lender collection costs.
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Paying interest upfront rather than rolling it into the loan principal can sometimes lower rates.
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Putting additional collateral like jewelry or household valuables towards the loan amount may help improve the rate offered.
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Having a relationship with the lender like a checking account or previous loan may qualify you for an existing customer discount.
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Inquire about any first-time borrower discounts or promotions the lender may be running. Times like tax season are when you’ll find the best deals.
Taking a few minutes to research the latest rates and shop lenders can potentially save you hundreds, if not thousands, of dollars in interest charges. Rates and fees will also be disclosed when you apply so you can compare total costs.
Alternatives to High-Interest Vehicle Collateral Loans
While fast and easily obtained, collateral loans on cars and motorcycles do charge higher interest rates than many other financing options. Make sure to consider these alternatives before using your vehicle as loan security:
- Borrow from Friends & Family: Asking loved ones for a loan and repaying on fair terms
Bottom Line Up Front
- Car title loans are low-risk for lenders but have much higher risk for borrowers.
- High interest rates and short terms are common in car title loans.
- If you need fast cash, a personal loan might be a better, lower-risk alternative.
When you’re in need of cash, you might be tempted by late-night commercials offering quick cash with only your car as collateral. These loans are most commonly known as car title loans, but go by many names—pink-slip loan, title pledge or title pawn. Is this a smart option? Here is what you need to know.
Car Title Loans Often Involve High Interest Rates
Advertised interest rates on car title loans may not accurately reflect their risk. While some states cap interest rates on title loans, others do not, and loans may have rates of 300% per year, or more! Some lenders also charge additional fees on top of the interest. Be sure to look carefully at any fees and the interest rate when agreeing to a loan.
Can I Get a Loan Using My Car As Collateral?
FAQ
Can I borrow money with my car as collateral?
Does California still do title loans?
Does anyone do collateral loans?
How does collateral work with an auto loan?
What is a car title loan?
A car title loan is a short-term loan that uses your vehicle as collateral. More often than not, car title loans are much more expensive than auto equity loans. In comparison, auto equity loans often have longer terms and lower interest rates. Consider all that an auto equity loan has to offer.
Can a car loan be used as collateral?
Most car loans require you to use your car as collateral. And there are many benefits, like locking in lower rates, and lower monthly payments. The risk? If you default, you could lose your car. How does a secured car loan work? A secured car loan typically has competitive interest rates and allows a buyer to use the car as security for the loan.
What should I know before getting a car collateral loan?
Before getting a car collateral loan, you should thoroughly read through the contract and state laws regarding title collateral loans in your state. Also, make sure only to borrow what you can afford to pay back and always make your payments on time to avoid losing your car or further damaging your credit.
How do I get an instant car collateral loan?
To qualify for an instant car collateral loan, your vehicle must be paid off, and the title must be in your name. You need to show proof of income from your bank or employer, and some companies will want to see valid registration and insurance documents from the DMV.