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Can You Take Out a Loan Against Your Car?
I need to take out a loan, but my credit isn’t great. From what I know, I’ll get a better rate if I have collateral. Can I use my car for that?
Bonnie Stinson · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Yes, you can take out a loan against your car as long as you have positive equity on it. There are three options to consider in this situation.
Option 1: Cash-out refinance
This is when you refinance the vehicle and get additional funds for the loan because you have equity in your car. Make sure you know
what to bring
to the lender for this process.Option 2: Auto equity loan
This loan is in addition to your current loan, but the lender will base the amount that you can take out on the current amount of equity you have in your vehicle.
Option 3: Unsecured personal loan
This could work depending on what you need the loan for. Although interest rates are higher, unsecured loans do not require collateral. You could also look into lenders who offer loans for those with lower credit scores.
Keep in mind: Using your car as collateral for a personal loan puts you at risk of repossession, so it’s important to weigh the pros and cons of this choice before moving forward. To learn more about your options when using your car as collateral, talk to your lender.
If you do not have enough equity on your car, though, you won’t be able to use it for a loan. You could ask if the lender will accept other types of collateral like a savings account or your home.
However, be aware that using something as collateral for a loan puts you at risk of losing it if you can’t make payments as agreed. Please carefully assess your financial situation before committing to this kind of loan.
MORE: What is APR and how is it calculated?
View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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