Borrowing Money Against Your Car
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Borrowing Money Against Your Car: What You Need to Know

If you need a personal loan, you’re not alone; one in four adults in the US were in the same boat in 2020. Of these borrowers, 28% took out a loan for big-ticket items, while 17% used it for home improvements.

Regardless of why you need a personal loan, know that you can use your car as collateral. Borrowing money against your car can be a quick way to get the funds you need in just a day or two.

We’ll go over what you need to know about turning your ride into a source of quick cash, so be sure to read on.

What Does Borrowing Money Against Your Car Entail?

First, you must be the registered owner of the vehicle. Then, you could either choose to take out a title loan or an auto equity loan. Both types of financial services allow you to borrow money against your car.

What Then Is a Car Title Loan?

A title loan is a small, short-term loan secured by the title of an automobile. The security here, also known as the collateral, is the vehicle itself. According to this website, some title lenders let you borrow 50% up to 60% of your car’s wholesale value.

Lenders who offer cash loans on car titles usually don’t require hard credit checks. As such, even applicants with subprime credit, a credit score of below 670, can still qualify. Most lenders even market their title loans to such borrowers, which is about 31% of US adults.

In addition, many lenders make it easy for borrowers to apply for car title loans online. Some even have fully online processes, so you don’t have to leave your home.

Instead, you can fill out a web application form about yourself and your car. You can also upload the documents needed, including photos of your vehicle.

The most crucial title loan requirement is that the car is free (or almost free) of liens. This means you either own the vehicle outright or have nearly paid off your auto loan.

What About an Auto Equity Loan?

Like a title loan, an auto equity loan is a secured type of loan in which a car serves as collateral. The difference is that an equity loan only lets you borrow against the equity you have in the car. Still, some auto equity lenders let you borrow the full equity, while others may have a lower limit.

For example, suppose your car’s current value is $25,000, and you only owe $12,500 on it. In this scenario, your equity sums up to $12,500.

If the lender offers you a full equity loan, you can borrow the entire value of your equity, which is $12,500. However, if the lender only provides 50%, you can only borrow $6,250 against your car equity.

The upside to auto equity loans is that you can take one out even if you still owe money to your auto lender. Thus, they may be easier to qualify for so long as you have equity in the vehicle.

Don’t Forget to Pay Your Loan Back on Time

Borrowing money against your car is a hassle-free way to gain access to quick funds. However, before you sign the paperwork, make sure you can pay back the lender on time. For most title and auto equity loans, the due date is 30 days from when the lender issues the funds.

It’s imperative to pay back either type of loan, as failure to do so can lead to the repossession of your car.

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