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.
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. Lenders are more willing to lend to individuals with poor credit when there is security in the form of a car. However, keep in mind that the interest rate will likely be higher than if you had good credit.
What is Collateral?
The dictionary.com defines collateral 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 do not make your loan repayments, the car is forfeited to the lender. The lender then sells the car and pays out the loan with the sale proceeds. Any remaining funds are then returned to you, the loan applicant.
How much money can I borrow using my car as collateral?
The value of your car determines the amount of money you can borrow. 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 not usually 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 values 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 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
1. Credit 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.
2. Residential history
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 moves often and who is not on a formal rental lease is perceived as more risky. If a default occurs the lender may find it difficult to locate the borrower and recoup funds.
3. Employment history
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 results in a higher interest rate 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, AAA Finance has 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 to use your car as collateral!
Applying for a loan through AAA Finance is quick and easy. Easy over-the-phone application only takes 5 minutes. Or you can complete the application form in the comfort of your own home – the choice is yours. Quick approval times with most loans approved within 24 hours!
You can even get a pre-approved personal car loan using your car as collateral. Just answer a few simple questions to determine if you are eligible for a pre-approved personal loan.
