Can I Get a Personal Loan Using My Car As Collateral?

There are many different ways to get a loan, from refinancing your home to getting a small personal loan from a bank. But if you don't own a home or have poor credit, the number of options open to you may be limited. Car title loans allow you to take a short-term loan by signing over your vehicle as collateral to secure the loan.

Function

• Car title loans are secured loans, which means the lender has the legal right to repossess your car if you can't pay off the loan in the agreed-upon timeframe. You must own your car outright (meaning, any car loan must have been paid off) to get a title loan. Most car title loans give you between 30 and 90 days to repay the loan in full, including interest. You'll receive the loan as a check, which you can cash and use for any purpose.

Benefits

• Car title loans offer you fast access to cash with a relatively simple application process. You'll need to be able to produce the car's title to prove that you're the owner, along with some sort of proof of income, but the lender won't perform a credit check. This means car title loans are available to borrowers with poor credit. Unlike selling your car to raise funds, you'll still have your car and be able to drive it during the loan period.

Drawbacks

• Car title loans usually feature high interest rates, which means the loan will end up costing you much more than the amount you borrow in the long run. If you fail to repay the loan, the lender can take possession of your car, leaving you without transportation. While this should eliminate your debt, some title loans still require you to pay the difference between what you owe and how much the lender makes by selling your car.

Warning

• Some car title loans fall into the category of predatory lending, with interest rates than can exceed 250 percent APR, according to CNN. Car title loans aren't subject to the same scrutiny or regulation as other types of loans, which gives lenders more opportunities to take advantage of borrowers by failing to disclose important information. Groups including the Consumer Federation of America and the Center for Responsible Lending caution consumers against using car title loans.

Alternatives

• While car title loans can serve as a last resort, many borrowers can look elsewhere first when they need fast cash. Credit cards offer cash advances at an interest rate that is higher than the interest rate on purchases, but still much lower than typical car title loans. Selling your car is another option, especially if you can make enough to get the cash you need and buy a less expensive car that better fits your budget.