Car Title and Personal Loan Collateral

If you own your car outright, with no lien present, the equity that remains in your car can come in handy especially as you seek to borrow money. Specifically, if you are seeking to take out a personal loan from a bank or a credit union, you may be required to put up something of value to secure repayment of the loan. That item represents collateral or what your lender would seize if you default on your loan. Read on for tips on how a car title can lead to a personal loan.


1. Retrieve your car title. Once your car note has been paid off, you will be issued an updated car title in your name. Find that title and verify that you are the owner with no lien present. If your title is missing or incorrect, then you will need a new one in hand before taking the next step.

2. Visit your lender. Likely, you have already shopped around for a personal loan. With your car title in hand, visit your lender and fill out a loan application. When you get to the part in the application where collateral is required to obtain a secured personal loan, identify the asset. In this case that would be your vehicle.

3. Discuss your loan options. A secured loan is one that backed by collateral. An unsecured loan is one that has no such requirement. A secured loan is easier to obtain and offers better loan financing terms including a lower interest rate. An unsecured loan is usually reserved for borrowers with very good or excellent credit. If approved, you will pay a higher interest rate. Choose a car title loan for favorable lending terms, understanding that you may forfeit ownership if you default on your loan.

4. Complete your paperwork. Fill out the entire application and present that along with your car title. If your application is accepted, your bank will issue you a check and will hold your car title until the loan has been paid off.

Car Title Considerations

If you are turned down for a car title loan, ask your lender for the reasons why. These reasons can include a checkered job history, insufficient salary, a low credit score or bad credit history. Your lender may also counter your loan request with a different offer, one that matches the value of your car.

For instance, if you asked to borrow $5,000 and your car is worth $3,000, you may receive conditional loan approve. That condition is that you agree to modified terms including a reduced loan amount. Make sure you understand what those terms are before signing your name on the contract.

Title Loan Notes

When you offer your car as collateral for a personal loan, your lender will notify your state’s department of motor vehicles that there is a lien on your car. Notify your insurance company to have the lender named as additional insured. You may need to increase coverage to meet your lender’s requirements — e.g., add collision insurance. Finally, stay away from shady lenders that want to charge you an exorbitant interest rate — no car title loan is worth it if your loan terms stink.

Further Reading

Consumer Federation of America: Latest Predatory Lenders Drive Borrowers into Debt With High-Cost Loans Secured by Cars

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