Here’s How to Borrow Money On Your Car and Still Drive It

Borrow Money and Still Drive Your Car

A title loan on your vehicle gives you the ability to obtain a loan and use your car as collateral. This is a high-risk strategy to obtain money, and you should understand that it is not only risky, but you’ll also need to meet certain criteria. Are you looking for ways to borrow money on your car and still drive it? Here’s what you should know first.

What is a Car Title Loan?

Sometimes referred to as pink slip loans, a title loan is a loan using your car as collateral. The rules vary by state, so if you are considering a title loan, you’ll have to do a little homework to find out how to obtain funds where you live. The most basic requirements are:

  • a lien-free title
  • 18 years of age or older
  • a government-issued ID

Note that some lenders will write these loans even if you currently have a loan against your vehicle, but you must have a certain amount of equity to be considered. The lender will do an appraisal of your vehicle and loan you a percentage of the car’s value. This will usually fall in the 30 to 50 percent range, but the amount can vary by lender and state. Once the loan is written, you hand over your title to the lender. They will then hold it until you pay the loan off in full.

What Are the Risks?

The main risk is that something could happen to your car while the loan is still outstanding. If you should get in an accident or have your car stolen, you will still be on the hook to repay the loan that you took out, even though you can’t drive your car. Defaulting on the loan will result in repossession and a black eye on your credit report. These loans are high risk, so you’ll pay a higher interest rate than you would with a more traditional loan. Each state regulates the interest rate, but you can expect to pay back around $1200 for every $1000 you borrow.

Reasons to Consider Title Loans

So, why go this route? Title loans are simply a way to obtain financing if you’re in a pinch. This could be a possible solution to someone strapped for cash and in need of money for a short-term reason – for example, a timing issue to pay a bill that is due two days before payday. It could also be a better option than going to a payday lender.

Finally, a savvy investor might use title loans as a way to buy an income producing asset such as a down payment on a rental property. Whatever the use, it must be a short-term reason, and you need to have a plan in place to pay the note off quickly.

Closing Thoughts

While I personally wouldn’t borrow against my car, this option exists for someone in need of money quickly and out of options otherwise. It is better than a payday loan, but the risks are still high. I would advise people to stay away from this, but if you must, do your homework, find out what the laws are in the state that you live in, and have a strategy to pay the loan off quickly before you sign on the dotted line.

Have you ever borrowed money against your car? Share your experience in the comments below.

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  1. Why the heck would you ever take out a title loan? Why not just save up an emergency fund?

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