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What if I used my vehicle 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 better financial choices by providing you with interactive tools and financial calculators as well as publishing quality and impartial content. We also allow you to conduct your own research and compare information for free to help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies that compensate us. This compensation could affect how and where products appear on this website, for example for instance, the sequence in which they be listed within the categories of listing in the event that they are not permitted by law. This applies to our mortgage or home equity products, as well as other home lending products. But this compensation does not influence the information we provide, or the reviews that you read on this site. We do not include the vast array of companies or financial offers that may 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. Written by Helen Wilbers Edited Helen Wilbers Edited by Helen Wilbers has been editing for Bankrate since the end of 2022. He believes in the clarity of reporting that can help readers easily land deals and make the most appropriate choices regarding their finances. He specializes in small business and auto loans. The Bankrate promise

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They ensure that what we write ensures that everything we publish is accurate, objective and trustworthy. The loans reporter and editor concentrate on the things that consumers care about most — various types of loans available and the most competitive rates, the top lenders, how to pay off debt and many more. This means you’ll feel safe making a decision about your investment. Editorial integrity

Bankrate follows a strict and rigorous policy, so you can rest assured that we’re putting your interests first. Our award-winning editors, reporters and editors produce honest and reliable information to help you make the right financial choices. Key Principles We respect your confidence. Our mission is to offer readers reliable and honest information. We have established editorial standards to ensure that this happens. Our reporters and editors rigorously verify the truthfulness of content in order to make sure the information you’re reading is accurate. We keep a barrier with our advertising partners and the editorial team. Our editorial team does not receive any direct payment by our advertising partners. Editorial Independence Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to provide you the best advice to assist you in making smart personal financial decisions. We follow rigorous guidelines that ensure our content isn’t influenced by advertisers. Our editorial team is not paid direct compensation from advertisers, and our content is thoroughly verified to guarantee its accuracy. Therefore when you read an article or a report you can be sure that you’re getting reliable and dependable information. What we do to earn money

You have money questions. Bankrate has the answers. Our experts have helped you understand your finances for more than four decades. We are constantly striving to provide our readers with the professional advice and tools needed to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct , therefore you can be confident that our content is honest and reliable. Our award-winning editors, reporters and editors create honest and accurate content to help you make the best financial decisions. The content we create by our editorial staff is factual, objective, and not influenced through our sponsors. We’re transparent about how we are in a position to provide quality content, competitive rates and useful tools for you by explaining how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for the promotion of sponsored goods and, services, or when you click on certain links posted on our site. Therefore, this compensation may affect the way, location and in what order items are listed, except where prohibited by law. This is the case for our mortgage or home equity products, as well as other products for home loans. Other elements, like our own rules for our website and whether the product is available in your area or at your own personal credit score may also influence the way and place products are listed on this site. While we strive to provide an array of offers, Bankrate does not include the details of every credit or financial products or services. If you are in need of a loan, but are having difficulty finding a good rate or finding one , you may need to turn to . One option is using your vehicle as collateral. An auto equity loan lets you take out a loan against the worth of your car. While secured loan could mean an interest rate that is lower, consider the potential consequences before deciding to approve this type of financing. Can I use the car I own to serve as loan collateral? Yes, you can use your car as collateral to secure the loan. The secured loans will require assets the lender can repossess should you not pay back the loan. The collateral can help you qualify for a loan especially when you’re carrying . The risk is greater for the loan, so lenders may offer lower rates in exchange. You must have equity in possession to use it as collateral to secure secured loan. Equity is the difference between what you paid for that the collateral is worth and the amount you owe it. For example, if the resale value of your vehicle is $6,000, but there’s still $2,500 owed on your car, you’ll have $3500 of equity in the vehicle. In this case you’d have equity that’s positive due to the fact that the value of your vehicle is higher than what you are owed. The greater the equity you have in the loan the lower the interest rate will probable to be. The biggest risk of using your car as collateral for an is that in the event of a default on the loan the bank or lender can take possession of your car to help repay the loan. Fees might also apply. If you’re considering using your car as collateral, you should check the terms of your lender to find out whether they allow this kind of collateral and the amount of equity you’ll require. The advantages of using your car as collateral There are two major advantages of securing the loan using your car. Easier to qualify for the loan. Because of the additional security collateral lenders receive from secured loans are typically much easier to obtain than conventional personal loans. Lower interest rates. Secured loans generally offer lower rates of interest. Drawbacks of using a car as collateral Although using your vehicle as collateral is appealing however, there are risks with this type of loan. The more likely you are to end up . There is a higher chance that you will end up upside down — or have equity that is negativedue to the fact that you’re adding an additional amount to the debt you already owe. Potential for repossession. It is a risk that comes along the use of your vehicle as collateral. If you do not pay back your loan, the lender can . Along with this, your credit score will be impacted negatively. The auto equity loan in contrast to. the car title loan A title loan, also referred to by the name of a “pink-slip loan” or “title Pawn”” utilizes your vehicle as the principal collateral to secure the loan. Title loans permit borrowing between 25 and 50% of the value of your vehicle in exchange for turning the title to your vehicle over to your lender to be used as collateral. Car title loans are high-stakes because they have a loan term is typically extremely short, typically 15 to 30 days — while the rate of interest is high, at around 300 percent APR. These types of loans differ from auto equity loans in several ways. A car title loan is a short-term loan in comparison with an automobile equity loan which typically has longer term repayments. The car title loans are often much more expensive as compared to auto equity loans. They usually allow you to take out smaller amounts of money as compared to auto equity loans. You typically cannot take out a car title loan if you owe money on your car. Due to the expensive fees and interest rates, title loans could be repaid very quickly if you cannot pay off the debt within a short time frame. What other collaterals can you use for loans? Your car is not the only collateral you could use to get loans. Other kinds of collateral are: Your home. You can use a portion of the equity you’ve built up in your property as a loan sum or line of credit. Typically, banks let qualified borrowers tap up to 85 percent of their home equity. The savings accounts. or are personal loans that utilize you savings as collateral. Credit unions and banks frequently offer these. When making use of your car as collateral, double-check the other options. Have you got a trusted family relative willing and able to provide an in-short-term loan? Are you able to save up for the expense or find an additional source of income to pay for the costs? If you think a loan that uses your car as collateral is the best option, shop around with a handful of lenders. The repayment terms, repayment terms and the associated costs to choose the loan that’s the best fit.

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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. Written by Helen Wilbers Edited Helen Wilbers Edited by Helen Wilbers is editing for Bankrate from late 2022. He believes in the clarity of reporting that can help readers successfully get deals and make most appropriate choices regarding their money. He specializes in small and auto loans. Related articles Auto Loans 4 min read Jan 13, 2023 Home Equity 3 min read Dec 12, 2022 Loans 4 minutes read Sep 30 2022 Auto Loans 5 min read June 22 2022

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