Can I Use My Car as Collateral for a Personal Loan?

Can you use a car as collateral for a personal loan? Though it is not necessary to pledge any security or collateral when applying for a personal loan, if you have any type of collateral, then you can use that when applying for your loan. However, most personal loans are unsecured loans that are given by a lender to help the borrower meet financial needs. For personal loans are just that—a flexible loan to be used for just about any personal reason you may need.

The important thing is you should always borrow responsibly under any circumstances. Personal loans are usually earmarked for short-term financial solutions such as managing travel costs, wedding expenses, a medical emergency, a necessary home renovation or debt consolidation among other needs. In general, a personal loan does not require collateral, meaning that it is an “unsecured” loan. Because of that, the interest rate will likely be higher. However, if you want to lower your costs you may consider a secured personal loan.

If you apply for an unsecured personal loan the amount you are able to borrow is primarily subject to your financial history. Your credit score, income, and income to debt ratio will all factor into your borrowing limit. So if your credit score is not high or strong enough to get the number of funds you need to secure, you may consider using your car as collateral for a personal loan.

Collateral loans already have a way for lenders to assure they’ll get their money back. Therefore, credit and lending requirements are usually more relaxed on a secured personal loan. Essentially, offering collateral is pledging something you own in return for securing a loan that, in most cases can get you a larger loan amount or a better interest rate. That pledge holds you to make timely payments as scheduled or risk forfeiture. The lender can legally seize your collateralized asset, plus your credit score will suffer.

To answer the original question, yes, you can borrow against your car to secure a personal loan. In fact, the overwhelming majority of people who receive a secured personal loan use some type of vehicle as collateral. The types of vehicles that are acceptable to a lender as collateral include cars, trucks, motorcycles, boats, campers, and RVs. These loans allow you to use the equity in your car to borrow money against the market value of it.

In addition to using your car or vehicle as collateral to obtain a loan, there are other assets you may have such as equity in your home. As with your vehicle, you can use your house to obtain financing through a second mortgage. This type of loan is commonly referred to as a home equity line of credit (HELOC).  Also called second mortgages, HELOC’s are additional loans obtained outside your primary mortgage that use the equity in your home as collateral for the new loan.

If your loan needs are not that large for a second mortgage, you can secure a personal loan with future paychecks, too. You can use your future income to secure a personal loan in the form of a cash advance loan. These types of loans are generally short-term; borrow money now and pay it back when you get a paycheck. A cash advance loan is a legitimate loan, not a payday loan that carries high APRs that make them a very costly way to borrow. It is a loan option that is paid in full upon receipt of your next paycheck.

Nevertheless, using your car as collateral could be a good option for those looking for a larger loan than a cash-advance loan, and chances are you will receive better interest rates and terms. Tio Rico offers flexible personal loans that can help make the process seamless. Acquiring a personal loan at Tip Rico is a fast and easy way to secure a short-term cash loan. Using your car as collateral, Tio Rico can process and approve the loan to help you get through unforeseen situations where you need to borrow money fast. At Tio Rico, we have the best personal loans in Arizona with superior customer service to match!