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The Pros and Cons of Using Your Car as Collateral on Loans

LOS ANGELES – July 22, 2021 – (

If you’re looking for fast cash, there aren’t too many options through traditional lenders. Because of this, you may look to using one of your most valuable assets — your vehicle — as collateral to expand your loan choices.

Using your car as collateral can be a good strategy for getting cash fast, but there are also some drawbacks to be aware of.

Make sure you keep these pros and cons in mind before moving forward on any loans where your car is the collateral.

The Pros

Fast Funding

Traditional loans — even ones that offer your loan fast — can take a day or two from application to full funding.

Not so when you use your car to secure your loan.

You can apply for auto equity and auto title loans fast and be out the door with your loan in under an hour at some lenders.

Available for Fair or Poor Credit

Borrowers without great credit may struggle to find lenders willing to extend them a loan.

Using your car as collateral can help out.

Both auto equity and auto title loans avoid checking your credit in most cases. If your credit score is keeping you from traditional loan options, using your car as collateral can work.

You Can Continue Driving Your Car

There’s no need to hand your car over to the lender when you use your vehicle as collateral. As long as you make your payments on time, you get to continue driving your car while taking advantage of the loan.

The Cons

Risk of Car Loss

The most obvious drawback here is that you risk losing your car if the loan is not paid back. If driving is your only option for commuting to your job and earning an income, these types of loans can be risky.

Interest Rates and Fees

Putting down collateral on a loan could lower the interest rate because the value of the collateral offsets the lender’s risk.

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However, the types of loans that require your car as collateral typically come with high interest rates even though your vehicle is securing the loan. A more valuable car may bring down your rate a bit, but you’ll still be paying plenty in interest.

Loans involving your car as collateral often come with various fees. For example, some loans may require you to pay a repossession fee if you can’t pay your loan. Not only will you lose your car, but your vehicle may not auction high enough to cover the balance of your account.

To avoid as many fees as possible, only take out a loan that has a repayment plan that fits your budget, and make sure to read the fine print.

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.

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The Pros and Cons of Using Your Car as Collateral on Loans