The pros and cons of using your car as collateral for loans

LOS ANGELES – July 22, 2021 – (

If you’re looking for quick cash, traditional lenders don’t offer a lot of options. For this reason, you may want to consider using one of your most valuable assets – your vehicle – as collateral to expand your loan options.

Use your car as collateral can be a good strategy for getting money fast, but there are also a few downsides to be aware of.

Make sure you keep these pros and cons in mind before going ahead with any loan that secures your car.


Quick financing

Traditional loans – even those that offer your loan quickly – can take a day or two between application and full funding.

This is not the case when you use your car to secure your loan.

You can apply for equity and auto title loans quickly, and get your loan in under an hour with some lenders.

Available for fair or poor credit

Borrowers without great credit may have difficulty finding lenders willing to provide them with a loan.

Using your car as collateral can help.

Auto equity and auto title loans bypass your credit check in most cases. If your credit score prevents you from opting for traditional loans, using your car as collateral may work.

You can continue to drive your car

It is not necessary to turn your car over to the lender when you use your vehicle as collateral. As long as you make your payments on time, you can continue to drive your car while taking advantage of the loan.

The inconvenients

Risk of loss of car

The most obvious downside here is that you risk losing your car if the loan is not paid off. If driving is your only option for getting to work and earning an income, these types of loans can be risky.

Interest rates and fees

Placing a loan as collateral could lower the interest rate because the value of the collateral offsets the lender’s risk.

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However, the types of loans that require your car as collateral usually come with high interest rates, even if your vehicle secures the loan. A higher value car can lower your rate a bit, but you’ll still pay a lot of interest.

Loans that involve your car as collateral often come with various fees. For example, some loans may require you to pay repossession fees if you cannot pay your loan. Not only will you lose your car, but your vehicle may not be large enough to cover your account balance.

To avoid as many fees as possible, only take out a loan with a repayment plan that fits your budget and be sure to read the fine print.

Notice: The information provided in this article is for informational purposes only. Consult your financial advisor about your financial situation.

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The pros and cons of using your car as collateral for loans

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