How to Use a Car As Collateral

You can use your car's title as collateral on a loan.

In the event you need a loan, but are financially leveraged and unable to apply for an unsecured loan, you can use your car as collateral for a credit union, bank or finance company. Loans are easier to obtain when the borrower has collateral to offer and collateral loans can translate into more competitive interest rates if the borrower also has a good credit rating.

To use a car as collateral for a loan, you'll need to have a clear title and an estimation of the value of the car.

Things You'll Need

• Car title

Instructions

1. Estimate the value of your car. Its value is based on make, model, trim level, age, mileage, fuel economy, and wear and tear. In general, a car that is two to three years old has suffered depreciation, but if the mileage is in a median average with same-year vehicles, it will retain its value.

   Estimating your car's value can be done by visiting online auto valuation companies such as Kelly Blue Book or Edmunds and by browsing auto sales websites to compare same a like model vehicles that have the same trim level, mileage and wear and tear (See Resources 1 and 2).

2. Compare loan products from different lenders. Begin by visiting bank and credit union websites and read about their loan products, rates and terms. Many banks and credit unions advertise their loan products online and give general information about qualification requirements. You'll want to choose a bank or credit union that gives you a loan with a low interest rate and a term-length suitable to your personal financial situation.

3. Apply for a loan. Take your car's title to the bank or credit union you've researched and chosen, and apply for a personal or collateral loan. You'll need to supply the bank or credit union with a clean title, your full name, your social security number, date of birth, address and phone number and consent to a credit inquiry.

Tips & Warnings

• It is best to obtain a loan from a bank or credit union rather than a loan title company; interest rates are often extraordinarily high and repayment terms are stringent---in the event you default, the title loan company can repossess your vehicle.

References

• Wells Fargo: Know your credit options
• Shara Augustina Personal Finance: Can a finance company use someone elses car for collateral on a personal loan?

Resources

• Kelly Blue Book
• Edmunds