Can I use my car as collateral?

A car is a valuable asset for most people. It offers great utility and function and is generally a long-term purchase. In fact, you can easily get a car of your choice today with the help of a car loan. 

But can you use your car to help you when you need funds?

Find out in our guide to using your car as a collateral.

What is a collateral?

Collateral is something that you pledge as a security when you take a loan from the bank. If you are unable to repay the loan, the bank may take possession of the collateral.

The most commonly accepted assets that are used as collateral include property, bonds, gold, savings certificates, deposits and vehicles.

Can I use my car as collateral?

Yes. Some banks refer to this as loans against car. 

It’s best to check with your bank if they offer such an option for loans. 

How will such a loan work? 

When you offer your car as collateral for a loan to your bank, the bank will first need to know its current value. To determine this, an expert may inspect your vehicle and arrive at a number based on your car’s age, condition and depreciation. 

Next, the bank will make you a loan offer. The loan amount can range from 80% up to 150% of your car’s value, depending on the bank’s policy and your risk profile. 

What happens when I pledge my car as collateral? 

Once you accept the loan offer, you cannot sell the car. An endorsement stipulating that your car has been offered as collateral will also be added to its registration document. 

Can I pledge my car as collateral to any bank? 

Some banks have restrictions on which cars they can accept as collateral. 

For instance, some banks may only offer you a loan against your vehicle as a top-up loan for a car that is already financed by them. HDFC Bank offers top-up loans against car loans taken from other banks, too. 

Some banks may accept only vehicles that are less than five years old as collateral. 

What are the advantages of using my car as collateral? 

If you have a good credit history, you can get attractive interest rates on a loan against car. 

You can also enjoy quick disbursals and speedy processing when you pledge your already-financed car as collateral.

* Terms & conditions apply. Loan disbursal at sole discretion of HDFC Bank Ltd

Apply for an HDFC Bank Car Loan here now!