Getting a loan can be difficult if you don’t have property or a business or your credit score is poor. However, the good news is you can use your car to get a loan in the UK. Not only are car collateral loans quick, but the process is also simple. Some auto companies or financial institutions offer flexible payment schedules, allowing you to choose weekly or monthly repayment plans.
This is probably news to you if you’ve never taken a car collateral loan. It’s only natural to want to know all the details about car loans before taking one.
Here’s all you need to know about using your car to get a loan.
Types of Car Collateral Loans
Using your vehicle to secure a loan means using it as collateral. Here, the lender or financial institution in the UK remains the title holder of the vehicle until you repay the loan with interest. A car collateral loan may be approved if you are the outright vehicle owner or have ongoing payments.
Using your car to secure loans comes in two categories; car title and auto equity loans.
1. Car Title Loans
A car title loan is for those who own their vehicle outright in major cities like London in the UK. It ensures that you share your car title with the lender. The loans are relatively small, some as low as 25% of the car’s current value.
The interest rates can also be high with a short repayment window of one month or less. However, if you live in London, partnering with top companies offering Logbook loans London can make the process quick with same-day loan completions.
2. Auto Equity Loans
An auto equity loan is for those with current payments on their vehicle. The lender approves the loan based on the car owner’s equity; the difference between the car’s value and what they owe. Unlike car title loans, this loan type offers a longer repayment period. However, finding lenders can be challenging.
Points to Consider When Getting a Car Collateral Loan
When you get a loan, there’s always a chance that some conditions may be unfavorable. This could affect your ability to repay in due time. You might come off worse mentally and financially than before getting the loan.
On a positive note, the loan might help you achieve some financial goals. You never know the outcome.
Here are some points you must remember when opting for this endeavor.
1. Shady Car Title Lenders
Not all car title lenders operate in good faith. Some make a bulk of their revenue from ripping off unsuspecting borrowers. From having loosely-interpreted loan terms to charging exorbitant interest rates, they can be shady. They may also give you an unreasonably short repayment window.
2. Low Credit Score
You risk lowering your credit score to ridiculous levels by taking a car loan. The inability to repay your loan when due may lead to serious consequences that would reduce your credit score. This would make it increasingly difficult to get credit cards or loans in the future.
3. Car Repossession
Having a car could either be a luxury or a necessity. It depends on lifestyle, job type, and location. If your vehicle is crucial for your daily dealings, including commuting to work or ensuring personal commitments, losing it can be a nightmare. Unfortunately, defaulting on your car loan payments may lead to a repossession.
4. Interest Rates
Money lending companies make their fortune through interest rates. You must understand there’s always the risk of ridiculously high interest rates when getting a car collateral loan. Studies show car loan rates are about 10% and 14% for new and old cars. However, many car title lenders offer ridiculous interest rates between 25% and 50%.
How to Get a Car Collateral Loan?
Getting a car collateral loan is straightforward. Here’s how to get one in four simple steps.
1. Research Reputable Lenders
Using your vehicle to get a loan can be risky. Thus, you want to work with reputable companies you can trust. That’s why research is important. Do some digging into lenders. You may ask friends, family, or colleagues for recommendations.
Also, check online reviews for firsthand accounts of people who have experienced working with these lenders. You may make formal enquiries by calling or messaging a company representative before making your final selection.
2. Apply for the Loan
While some lenders may require you to schedule a meeting, others only need you to apply on their website. Before applying, check the website for their loan terms. Next, fill out the loan application with all the required information.
Your identification details, car model, mileage, and other key information will be required in the application form. These details will determine the loan amount and conditions for repayment.
3. Provide Additional Documents
The loan application process will require you to provide certain documents. These documents will back up your ownership claims and prove your identity.
Proof of identity documents, residence permits or utility bills, and car titles are vital documents you’ll need. Once your identity and car ownership documents are confirmed, your loan will be approved.
4. Sign the Loan Agreement
You must sign a loan agreement with the lender before getting paid. The contract will detail the loan terms, including interest rates and repayment window. Ensure you read the contract carefully and ask for clarification on whatever you don’t understand. You’ll receive the agreed sum once the agreement has been finalized.
Conclusion
Using your car as collateral for getting a loan is usually the last resort for many people. Doing this can be risky as car repossession or a worse credit score afterward is possible. Perhaps the biggest risk is being indebted to unscrupulous lenders.
On the other hand, getting a car loan can help you solve financial problems that can make a significant difference. The loan could be the timely boost you or your business needs to reach the next level.
Getting a car loan is one of the simplest loans you can get if you follow the right procedure. Watch out for shady lenders. Research them online or talk to someone you trust for recommendations. More importantly, it’s advisable to take a car loan only as a last resort.