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Secured Car/Vehicle Loan

A secured car (vehicle) loan (or collateral car loan) is a loan secured by a lien placed on your car. This can mean borrowing money against the value of a car you already own, as with a title loan, or using a loan to buy a new car which will act as collateral during the life of the loan, as with a traditional auto loan.  

Title loans are small, short-term loans based on the value of your car, with the agreement that, if you’re unable to make payments, the lender has the right to take your car and use it to pay off the outstanding balance. Title loans are famous (or rather infamous) for being very accessible, since essentially all you need to get one is a car, regardless of your credit rating. That is, title lenders tend to base the loan amount on the value of your car, and not much else, knowing that they can simply seize it if you default. This makes it easy to take out a title loan even if you have poor credit and can’t really afford it.

Title loans also tend to have notoriously high interest rates, making them an easy way to fall into debt. That said, if you’re sure you’ll be able to pay it back on time, a title loan can be a convenient way to get quick cash without having to worry about processing time.

As for Auto loans, these are loans used to buy a new car, where the car acts as collateral until it’s paid off (like a mortgage). Unlike title loans, these will require you to have a decent credit score, but will also have lower interest rates.

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Rates (%)

How much interest you pay on a car collateral loan will depend on the type of loan you take out. Regular auto loans, which basically work the same as a mortgage, will have rather low rates, usually around 4-5%. Title loans, on the other hand, usually have infamously high rates, sometimes as high as 25%.

Credit Requirements

While your credit will make little to no difference when applying for a title loans, the terms of an auto loan will be affected by your credit score. You may find approval for an auto loan even with poor credit, but the amount of the loan will be limited and you will end up paying higher rates. If possible, you may be better off taking the time to improve your credit to save money with a lower interest loan.

Using a Car as Collateral for a Personal Loan

If you plan to use your car to secure a personal loan, it’s recommended that you use the loan towards some sort of investment, like a second home, renovations to increase your home’s value, an education, or even a second car. This way, if you cannot payback the loan and lose your car, at least you’ll be left with a means to get your money back.

Using a Car as Collateral for a Business Loan

Car collateral loans can be a good way to invest in your business, such as by financing renovations, commercial property, equipment, or working capital. The trick to using a loan this way is to make sure the investment is dependable. Your loan will be secured, meaning you won’t need to prove to a lender (at least not rigorously) that your business is likely to succeed. But this doesn’t mean you shouldn’t prove it to yourself. The low interest on a vehicle-secured loan can be an effective way to develop your business, but you can end up losing your car if you’re not careful.

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