Can I take a loan out against a car I own?
An auto equity loan allows you to borrow money based on the current value of a car that you own.
Some lenders currently advertise that you could borrow up to 125% of your car’s equity for up to seven years. You’ll have to repay the borrowed amount, plus any interest and fees that the lender charges.
Ask the dedicated professionals at SoFi, and they will tell you that one of the questions they often receive would be can you refinance a car loan? And they are proud to say that, yes, this is definitely an option for some people.
First of all, if someone needs a personal loan but they are having difficulty finding one with a lower rate or they have difficulty getting qualified, using your automobile as collateral is an option. Of course, you should keep the potential consequences in mind before you sign off on a loan of this type.
Is using my car as collateral a good idea?
Yes and no. It’s definitely a lot better than payday loans, but normally, you should only go with this option if you have exhausted all other opportunities. If your credit score is less-than-perfect and you are in a financial pinch, it might be something you should consider.
According to the experts at Lantern by SoFi, “Even if it does seem easier to refinance with a lender you’re already working with, it’s crucial to rate shop and make sure you’re meeting your financial goals. And if you find a better deal elsewhere, it may not be that much harder to switch. Most lenders create an easy, streamlined application process.”
This type of loan is called a secured loan. Namely because it requires an asset that this financial institution would be allowed to repossess should you be unable to pay for the loan. Yes, this loan method does have its disadvantages. But utilizing collateral is one way for you to get a loan if you don’t have the best credit. Additionally, you can often not only get a better loan. But it will allow you to receive a lower rate in return.
A good deal?
But before you fill out the papers and sign on the dotted line, you should realize that whatever you intend to use for secured loan collateral should have some equity. . One example would be if you have a vehicle with a $10,000 resale value but you have $3,000 against it, that means you have $7,000 in equity. Moreover, this is a situation where you would have positive equity because your vehicle would be worth more than what you owe on it.
Of course, the largest risk of using a vehicle for collateral would have to be that should it go into default, your lender can repossess the vehicle to reclaim all of the debt you owe. There are extra fees that might apply.
If you’re curious about the possibility of using your car for collateral. Your first step should be to check the terms of your lender. And find out whether they would allow this collateral and the amount of equity that would be needed.
Benefits of using a vehicle as collateral
You will encounter at least two different advantages to acquiring a loan with your vehicle. First of all, it will be easier to qualify for a loan. Secondly, you will usually be able to enjoy lower interest rates. Because of the “security” the financial institution has of having your vehicle for collateral.
If you determine that a loan where your car is listed as collateral is your best alternative, then shop around, looking at several different lenders. Like any other type of loan, you will want to compare the terms of any prospective loan.