Collateral Loans on Vehicles: How to Get One

Often lenders are reluctant to grant a loan unless you can offer some sort of collateral. From the lender’s point of view, collateral is their guarantee that the loan will be repaid. Or even if not repaid, they will be able to recover their loan amount from the value of the collateral.

Many lenders will accept collateral. However, the borrower needs to understand that in the event of late and failing repayments, the lender has the right to take away the vehicle. Such loans are generally known as car title loans as the lender retains the title of the vehicle until the loan is repaid in full.

You can only use a vehicle as collateral if you legally own the car. Cars can be used as collateral to get any type of loan, even to buy the car itself, subject to the approval of the lender. Here’s how to get collateral loans on vehicles…

Sources for Getting Collateral Loans on Vehicles

Car Dealers – Some car dealers offer an associated financing possibility on the purchase of a car. These dealers work in partnership with lending organizations. Your benefit is that you purchase the car and get financing from the same source. The car itself can be used as the collateral for such financing.

Bank and credit unions – If you have enough equity in your car and your credit score is good, a bank or credit union won’t think twice before granting you a loan. The interest rates are also reasonable for such loans. The following link can be useful for you.

Title lenders – These are the lenders who are there for people with poor credit score and a lackluster income. They mostly operate online. Since the risk factor is quite high for title lenders, they offer only a small portion of the vehicle’s value as loan. Interest rates are often high, sometimes 300% per year. These loans are generally short term and if you fail to repay, the lender gets ownership of the car. Very risky.

Independent lenders – There are also independent lenders who accept car titles as collateral. If you are purchasing a car, you can approach such a lender. The lender usually transfers the loan amount from their bank account and it goes directly to the seller of the car. As collateral, the lender will hold the title of the car until you repay the loan amount with interest.

Suggested Article: Where to Get a Collateral Loan/Hard Money Loan Even If You Have Bad Credit

Problems with Getting Collateral Loans on Vehicles

So far so good. But let me now caution you before you decide to take loans putting your car title as collateral. Collateral loans come with risk.

  • You need to understand that these types of loans are often associated with high interest payments which can, at the end of the day, further deteriorate your financial condition. Most importantly, if you fail to repay timely, you are going to lose your car.
  • Car title lenders, in most cases, do not come under any credit regulation. Their terms and conditions are likely to be unfavorable towards borrowers’ interest.
  • Although you will get a loan amount for far less than the value of the car, you won’t be able to use the same car as collateral for other loans. Nice try though.

It is wise to consider alternatives before you choose to use your vehicle as collateral.

Alternatives to Title Loans

Credit card – For immediate cash, you can easily use your credit card. If the limit is not enough, you can ask the credit card company for a credit limit increase. However, this only works if you deserve an increase. You may get turned away. The interest rates on credit cards are also much lower than for a car title loan.

Using other assets – If you really need to use an asset as collateral, use one that is of less value to you, e.g. your unworn jewelry. Or perhaps sell some collectibles you have that are collecting dust.

Generate more income – There are many ways to make more money. What skills do you have? Use those skills for making extra money. If you don’t have time to work more hours (understandable) then find ways to increase your hourly rate. Ask for a raise. Switch to a company that pays more. Switch to a job that pays more. Do what you have to do to earn more money.

The bottom line: Keep the car title loan option open but try other alternatives first.

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2 comments

    • Laura Bachmann says:
      First Quarter Finance logostaff

      Hi George,

      Just to clarify, we ourselves don’t give title loans. But yes, you can get a title loan in Colorado from several sources, including directly from the car dealer, from a bank or credit union, or from a title or independent lender.