How to Borrow Money Against Cars

People can borrow money to buy or refinance cars. People often take loans out against cars they already own because the fixed-term loans have lower rates than unsecured forms of credit. Car loans generally have rates comparable with mortgage rates. When the prime rate falls very low, car rates dip below average mortgage rates. Most banks lend money only against cars less than seven years old. Some private dealers will offer loans on older cars, but normally only for purchases and not refinance or cash-out loans.

Instructions

1

Find local banks and credit unions and visit their websites. Look at the details of car loans they offer. Generally, credit unions offer lower rates than banks because they are nonprofit institutions. If you meet the membership criteria at a local credit union, you should join it and apply for a loan there. Most credit unions base membership on where you live and the type of job you have.

2

Go to the bank or credit union with the best advertised rates. Give the loan officer your car's title, driver's license and insurance information. The banker uses the Kelley Blue Book to determine the current value of your car. Most banks lend up to 100 percent of a car's value. Give the banker your Social Security number and your last two pay stubs.

The banker will pull your credit score from one of the three major credit-reporting bureaus: Equifax, Experian or TransUnion. The banks use the information on your credit report to determine your debt level. They use your gross salary to calculate your debt-to-income ratio, which for most car loans cannot exceed 50 percent. If your ratio prevents you from qualifying for a loan for the full amount of the car, lower the loan amount.

3

Sign the loan documents. Most car loans last for between two and seven years, and shorter terms have lower interest rates. Give the banker your car title. The bank will send the title to the state department of motor vehicles to record the lien. Contact your insurance company and notify it of the lien on the vehicle. If you have only third-party liability insurance, upgrade to comprehensive insurance, which is necessary because you now have a loan on the car.

4

Ask if you can set up an automatic debit for your car payment. This can be convenient, and many banks reduce the interest rate on the loan if you establish automatic payments.