Need cash but your credit is not great? If you own a car, you may be able to use it as collateral to get a loan with a lower rate and easier approval. The trade-off is real: miss payments, and the lender can take your car.
This guide breaks down how using your car as collateral works, what rates look like as of June 2026, and when it does and does not make sense. The aim is to give you the full picture before you put your wheels on the line.
What It Means to Use Your Car as Collateral
When you use your car as collateral, you take out a secured loan backed by the value of your vehicle. This is often called an auto equity loan.
You keep driving the car and make fixed monthly payments. The lender places a lien on the title. If you repay as agreed, the lien is released. If you do not, the lender has the right to repossess the car to recover its money.
This is different from a title loan from a storefront lender, which is usually a short-term, very high-cost product. A true auto equity loan from a bank or credit union typically has far better terms.
Why Borrowers Do It: Lower Rates and Easier Approval
The main draw is cost. Because the loan is secured by an asset, the lender takes on less risk, and that usually means a lower interest rate than an unsecured personal loan.
The benefits often include:
- Lower interest rates than a typical unsecured personal loan.
- Easier approval, even with fair or rebuilding credit, since the car backs the loan.
- Fixed monthly payments that make budgeting simpler.
Your rate depends on several things: your credit score, the car's make, model, and age, the loan amount, and the term.
What Rates Look Like as of June 2026
Secured auto loan rates give you a useful benchmark. As of mid-June 2026, the average rate on a 60-month new-car loan was about 6.98%, according to Bankrate's weekly survey.
Credit unions can come in lower. One credit union example showed a 72-month new or used vehicle loan of $30,000 at a 5.24% interest rate and a 5.39% APR, effective as of June 1, 2026. If you already owe on the car, it is worth checking the best place to refinance it before borrowing against the equity.
Auto equity loan rates vary by lender and by your credit, but the secured structure generally keeps them well below unsecured personal loan rates, which can climb much higher for borrowers with weaker credit.
How Much You Can Borrow
The amount is tied to your car's equity, which is its current value minus anything you still owe on it. If your car is paid off, all of its value is available equity.
Lenders rarely lend the full value. Many cap the loan at a percentage of the car's worth, so a vehicle valued at $15,000 might support a loan of several thousand dollars, depending on the lender's loan-to-value limit and your finances. Older or high-mileage cars are worth less, which lowers how much you can borrow.
The Big Risk: You Can Lose the Car
This is the part to take seriously. The reason the rate is lower is that the lender can repossess your vehicle if you fall behind.
Losing your car can snowball. If you rely on it to get to work, a repossession can cost you income on top of the vehicle itself. Only use your car as collateral if you are confident you can make every payment, and build in a cushion for surprises like a job change or medical bill.
Because of this risk, an auto equity loan is best for a clear, planned expense, not for covering an ongoing budget gap.
When to Consider an Unsecured Loan Instead
Using your car is not always the right move. If your credit is strong, you may qualify for an unsecured personal loan at a competitive rate without risking your vehicle at all.
It is worth comparing both. Upstart looks at more than just your credit score, weighing factors like education and employment, which can be a fit for borrowers who need a personal loan with bad credit or have a shorter history, and you can check your rate with a soft inquiry that does not affect your score.
Upstart
Upstart
Upstart is an online lending marketplace that partners with banks to provide personal loans from $1,000-$75,000. Upstart goes beyond traditional lending metrics to help you find financing that considers many factors including your education and experience
Standout feature
AI-driven underwriting that goes beyond your credit score — checking your rate is a soft pull with no score impact, most applicants are approved instantly, and funds can arrive as soon as the next business day.
Fees
Origination fee 0%–12% of the loan amount
Pros
No minimum credit score required (AI-based approval)
Cons
Origination fee: up to 12%
To put offers head to head, a marketplace makes it easy. MoneyLion runs a marketplace that surfaces personal loan offers from several partners, often with a soft credit check first, so you can see what unsecured rates you qualify for before deciding whether to risk your car.
MoneyLion
MoneyLion
Compare personal loan offers from top providers in minutes with no credit score impact with the MoneyLion Marketplace.
Standout feature
Soft-pull marketplace that surfaces prequalified personal loan offers from a network of lenders, with options up to $100,000 and partners that work with fair and bad credit
Fees
Free to use the marketplace
Pros
Compare multiple lender offers in minutes; soft credit pull to prequalify — no impact on your score
Cons
Final approval requires a hard pull from the chosen lender
Line up the offers side by side. If an unsecured loan's rate is close to a secured one, the unsecured option may be worth the slightly higher cost to keep your car off the table. To track your credit as you compare, a monitoring tool like Creditship.ai can help you see where you stand.
These are tools and starting points, not a recommendation of any single loan. APRs vary by creditworthiness, and terms and conditions apply.
Creditship
Creditship
Get free credit monitoring and concrete advice how to improve your credit from Creditship AI.
Standout feature
AI Credit Coach. AI analyzes your credit report in depth and gives you tailored, actionable steps to raise your score.
Fees
Free
Pros
Free credit report access plus monitoring and alerts
Cons
No credit repair feature
How to Get an Auto Equity Loan
If you decide a secured loan fits, the process is fairly simple.
- Estimate your car's value and subtract what you still owe to find your equity.
- Check your credit score so you know what rates to expect.
- Get quotes from a bank, a credit union, and at least one marketplace.
- Compare APR, term, fees, and the loan-to-value limit.
- Choose the best offer and read the lien terms carefully before signing.
What Users Commonly Report
Borrowers who used a car as collateral often say approval was easier than expected, even with imperfect credit, and the rate beat what they were quoted on an unsecured loan. Many liked the predictable fixed payment.
The most common worry is the repossession risk, and some regretted borrowing against a car they depended on for work. A few warned that storefront title loans, which are different from credit union auto equity loans, carried sky-high costs. A recurring lesson is to borrow against the car only for a planned, one-time expense you are sure you can repay.
Frequently Asked Questions
Can I use my car as collateral if I still owe money on it?
Sometimes, if you have built up equity, meaning the car is worth more than your remaining balance. Lenders base the loan on that equity. If you owe close to or more than the car's value, you likely will not qualify.
Is an auto equity loan the same as a title loan?
No. A storefront title loan is usually a short-term, very high-cost product. An auto equity loan from a bank or credit union typically has a much lower rate and a longer term, though both use your car as collateral.
Can I still drive my car during the loan?
Yes. With an auto equity loan, you keep and drive your vehicle while making payments. The lender holds a lien on the title, which is released once you repay the loan in full.
What happens if I cannot repay the loan?
The lender has the right to repossess your car to recover what it is owed. That is the main risk of using your vehicle as collateral. Only borrow this way if you are confident you can make every payment.
This article is for general information only and is not financial advice. Loan rates and terms vary by lender and by your situation. APRs vary by creditworthiness, and terms and conditions apply.
