From Debt Into Retirement

If you find yourself in need of money yet you have a bad credit score and cannot get a traditional loan, you do have the option of settling for an auto collateral loan. If you are smart with your money and you repay the loan on time, getting the loan could help you out of trouble and could even work to improve your credit rating. If you do have a bad credit rating, you can find it hard to get by, especially if you find yourself living from check to check. Having cash in emergencies in these situations can be nearly impossible, which is why auto collateral loans are available to help people who have found themselves in trouble due to doctor bills, car repairs, or other expenses.

One of the reasons many people cannot get an unsecured loan is because of a low credit score. Lenders are usually afraid to lend money to someone who has shown some measure of irresponsibility in the past, which is why those with poor credit find it so hard to get a credit card, or a traditional loan. This leaves many people seeking ways to borrow money with some measure of collateral, which is where auto collateral loans come into play, since they are available to people who have a less than stellar credit rating. In the case of an auto collateral loan, you place the title of your car as collateral with the lender. This way, if you do default on the loan, the lender will have your title has collateral and the vehicle can be collected at any time.

The caveat of offering your title for a loan is that you probably will not get a loan for what the car is worth, since your broker wants to be able to make money should you happen to default on the loan. On the other hand, because you have offered a piece of collateral, you will usually find these loans have a decent interest rate when compared to something like a second mortgage, which is another route many people take when they have poor credit. If you are interested in getting this type of loan in order to pay off your debts, you will need to have paid your car off, or only owe a few thousand dollars on repayment.

Lenders determine what they will give you for the car by looking at its value in Kelly’s Blue Book. Since the title is their only means of recovery should you default on the loan, you will probably find most lenders will give you around 25% to 50% of what the car is worth in the book. This is a means of protecting themselves, since if you default, the car becomes theirs and they can sell it at auction to recover their costs. Lenders will typically never offer you an auto collateral loan with a value equal to 100% of what the car is worth, so do not expect to receive directly what the car is worth.

The other important thing to watch out for when applying for this type of loan is lenders who will gouge you in either interest rates or loan fees. While these types of lenders are typically quick to approve you and hand out the cash you need, they do so because they know the interest rates they will be reaping from your repayment will make it well worth the cost in the long run. Finding an auto collateral loan that offers a competitive rate should not be hard, considering it is probably the best style loan that anyone with bad credit can take.

Remember healthy spending habits and having a plan to repay the loan can go a long way towards raising your credit score. If you manage to repay the loan on time with no missed payments, you are only serving to increase your credit score so that eventually you will be able to obtain unsecured loans again.