- Mortgages use your car as collateral, which means the lender can take back your car if you don’t pay.
- Property loans often have to be repaid within 15 to 30 days and carry interest rates of around 300%.
- Alternatives to property loans include credit cards, personal loans, side gigs, and local charities.
A property loan is a short-term, high-interest loan that uses your vehicle’s ownership as collateral when borrowing money. This means that the lender can take back your car if you do not pay off your loan on time. Many property loan lenders do not consider your credit history at all when making lending decisions.
If you are in trouble, have poor credit, and need money quickly, a property loan may seem like an attractive option to get your money back. But property loans come with significant downsides. Property loans are risky because they charge high fees and you are at risk of losing your car if you default.
Home loan lenders generally target borrowers with low credit scores or minimal credit history who are not eligible for low-cost loans elsewhere.
“In a perfect world, no one would take out a loan for ownership,” says Evan Gorinflu, senior financial advisor at personal finance app Albert. “It’s not something you normally call to get ahead or with a financial goal. It’s more designed to help you out at a desperate time.”
What is the cost of a loan versus ownership?
Property loans generally have interest rates ranging from 200% to 300% APR. A loan against ownership usually has a better interest rate than a payday loan, which can carry an APR of 400% or more. However, their rate is much higher than personal loans or credit cards, which usually have a maximum APR of around 36%.
“Mortgage loans are tough because a lot of people are relying on their car to make money,” Gorinflo says. “In that case, you give up your right as collateral. Sometimes you give them a second set of keys for your car, and they put your GPS in your car in some cases, so you make it really easy for them to reserve your car if you can’t Pay this amount.
How much can you borrow with a loan against property?
The range you can borrow depends on your individual situation, but generally lenders will allow you to get anywhere from $100 to $10,000. The typical term of a loan is from two weeks to one month, similar to how a payday loan works.
“There is a limit to how much you can borrow,” Gorenflo says. “If your car is $10,000, they won’t let you borrow all of that. Sometimes it’s 25% of the maximum on whatever equity you have. Some lenders will actually require you to own your entire car before they give you a title loan. It will work. Every lender is a little different.”
Pros and Cons of Loans vs. Ownership
What are the alternatives to loans versus ownership?
If you need money to pay for expenses like utility bills, credit card payments, or rent, try contacting creditors to set up payment plans that don’t require you to take out a loan. You never know what options might be available to you unless you reach out and ask her.
Other alternatives to property loans include asking for money from friends, taking side deals from ride-sharing apps, or reaching out to local charities or religious organizations. If you qualify, you may want to take out a credit card or personal loan with a lower APR than a property loan. You will still borrow money, but it will cost you less in terms of overall interest.
“If you need fast cash, if you need to earn $200, you can do it on a weekend with Uber,” Gorenflo says. “Even if it’s more wear and tear on your car, if you avoid taking out a 300% interest loan, it could definitely be worth it.”