How can I get a personal loan using my car as collateral?
If you are in need of funds and have a car that you own outright, you may be able to use it as collateral to obtain a secured personal loan. Using your car as collateral or security for a personal loan is a common way to access additional funds at a lower interest rate compared to that of an unsecured personal loan. Collateral is defined by dictionary.com as “property or other assets pledged by a borrower as security for the repayment of a loan”. In this case the asset is your car as collateral. If you are unable to repay the loan the car will be forfeited to the lender. The car is then sold and the loan repaid with any additional proceeds return to you, the loan applicant.
How much money can I borrow using my car as collateral?
The amount of money you can borrow against your car is determined by the cars value. The lender will value your car based on its make, model, and age. Lenders will want to ensure that they can recoup their money by selling the car if you are unable to repay the loan. Any accessories on the car, such as bull bar, roof racks, stereo system etc are usually not taken into account when valuing the car. Generally, lenders will allow you to borrow up to a certain percentage of the car's value. For example, if your car is valued at $20,000, you may be able to borrow up to $15,000. Our AAA Finance team can let you know how much money you can borrow. Call today on 07 5493 1222.
What can the funds be used for?
A personal loan is where the borrowed funds can be used for just about any type of purpose. The lender usually wants to know what the funds are to be used for. You may need to pay for education fees or medical expenses. Alternatively you may want a holiday, commence home renovations, or pay for your dream wedding. When applying for a personal loan you will be asked to disclose the purpose of the loan.
What is the difference between a secured and unsecured personal loan?
A secured personal loan uses an asset, such as a car, as security against the loan. This is what is means when you use your car as collateral. If repayments are not met the lender can use the sale of the car to pay out the loan. This type of loan has a low risk for the lender and as such has lower interest rates. If you do default the lender can easily recoup their money.
An unsecured personal loan does not use an asset as security against the loan. This type of loan has more risk for the lender. If you do default the lender has to pursue you, the individual, in an attempt to recover funds. They may even set up a long term repayment arrangement. As a result, a higher interest rate is charged.
If you have a bad credit history or a low credit score, a secured personal loan may be a viable option for obtaining the funds you need. Because the loan is secured, lenders may be more willing to lend to individuals with poor credit. However, keep in mind that the interest rate you are offered will likely be higher than if you had good credit.
Find out about all the different types of car loans on offer through AAA Finance.
What interest rate will I be charged?
One of the benefits of collateral loans is that they can often provide more favourable terms. This includes a lower interest rate, compared to unsecured personal loans. Rates for a secured personal loan start as low as 6.99%. The interest rate you will be charged is dependent on your risk profile and if the loan is a secured personal loan or an unsecured personal loan. Your risk profile takes into account a number of factors including:
- credit rating and previous lending history
- residential history
- employment history
If you have had any type of credit, including applying for a phone plan, electricity account, car finance or a mortgage, then you will have a credit score. Your equifax credit score can range from 0 to 1200. Most lenders will only loan money to those with a credit score over 400.
A busy credit file, that is applying for more than 6 loans in a 6-month period, making late repayment and or defaulting on loan repayments and using pay day lenders can negatively affect your credit score. These types of behaviours bring your credit score down.
Conversely, your credit score goes up if you successfully apply for a loan through a reputable finance company and make all loan repayments on time. This type of financial behaviour is rewarded with an increased credit score. Our article ‘What credit score do I need for a car loan’ explains credit scores in more detail.
Residential history relates to whether you a boarder, renter, or mortgage holder and how often you move residences. A person who has been at the same address for a few years, making regular rental or mortgage repayments demonstrates stability. On the other hand, a person who is often moving and not on a formal rental lease is perceived as more of a risk. If a default occurs the lender may find it difficult to locate the borrower and recoup funds.
Employment history relates to whether you are casual, permanent part-time, full-time or self-employed and how often you change jobs. A full-time worker will often have more funds available and a stable income to make repayments for the duration of the loan. Again, stability and the ability to make repayments will result in a lower interest rate. Casual workers who change jobs often will have a fluctuating income that is not guaranteed into the future. This situation will result in a higher interest rate being charged due to more risk.
How do I get a personal car loan using my car as collateral?
An experienced finance broker will get you the lowest interest rate possible and protect your credit rating. At AAA Finance we have a team of dedicated finance brokers. They will take the time to understand your financial position and what you want to achieve. With a range of over 40 different lenders, we have a lender to suit you. If you want to use your car as collateral, we can let you know how much money you can borrow, your interest rate and your approximate loan repayment amount. Call today on 07 5493 1222 to speak with a friendly finance expert.
Apply today with AAA!
Applying for a loan through AAA Finance is easy. A quick over the phone application only takes 5 minutes. Or complete the application form in the comfort of your own home. The choice is yours. Most loans are approved within 24 hours!
Get a pre-approved personal car loan using your car as collateral
Answer a few simple questions to determine if you are eligible for a pre-approved personal loan.
Before applying for a secured personal loan using your car as collateral, it's important to assess your financial situation. You need to ensure that you will be able to make the loan repayments. If you default on your loan, not only will you lose your collateral, but your credit score will also be negatively impacted. This could make it more difficult to obtain credit in the future.
Overall, secured loans can be a helpful option for individuals who need to borrow funds and have an asset that can be used as collateral. However, it's important to carefully consider the terms and conditions of the loan. Ensure that any finance taken, aligns with your financial goals and capabilities.
About the author
Peter Watman has extensive finance and automotive experience having worked in both industries for over 30 years. Peter founded AAA Finance and Insurance in 2012. He leads an experienced team that provides quick and easy finance solutions along with exceptional customer service.