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Loan against your car that is paid off

Jodie Humphries avatar
Jodie Humphries
- 4 min read
Loan against your car that is paid off

Many young Australians rent rather than own a home, meaning they won’t have home equity to use when unexpected expenses pop up. If you don’t own property, an alternative option is to apply for a loan against your car that is paid off. This would be a secured loan that works similar to a home equity loan, but holds your car as the collateral rather than a property.

How does a loan against a car that is paid off work?

When you take out a loan against your car, the lender will consider the value of your car, irrespective of whether you bought it outright or if you paid it off via a loan. Borrowers for the new loan must typically be the car's registered owners.  

Lenders will value your car and offer you a loan that is similar to this value. 

Some of the factors to consider when taking out a personal loan against your car include: 

  • This type of loan is less common and therefore may have limited availability or options
  • Older vehicles may not be considered eligible to use as security
  • Your income, savings and assets may affect how much you can borrow
  • Your daily expenses may affect your ability to cover the repayments, including interest and fees
  • The application will review your credit history
  • A lender will review any debts and consider how they may impact your ability to repay

Why would you get a loan against your car?

Sometimes, you may have unexpected expenses coming your way, such as home repairs, medical bills, school fees, travel or other costs. There could also be other emergency expenses where you need to access some funds. 

If you’ve heard about home equity loans that allow you to take out a loan against your home, you may ask, ‘can I get a loan against my car that is paid off?’ The answer is yes, you could use your paid-off car as collateral to take out a personal loan.

How to get started

Knowing your credit score before applying for a loan against your car can be helpful. This is often a free service offered by lending solution providers that can help you know where you stand with potential lenders.

It’s also a good idea to get a current valuation of your car done. You can get a free estimate of your car’s current value online at websites such as CarsGuide or Drive. To check car valuation, you just need to enter the make, model and trim of the car, year of purchase and total kilometres driven. The result will show the used car value depending upon the car’s assumed condition. This valuation is an estimate only and may differ from what you can get paid if you sell the car or what an official valuation from a lender may say.

Some lenders may want proof of comprehensive and collision insurance, which you may not currently have, especially if your car is fully paid off, so this could be an additional cost to consider.

Are you eligible for a loan against your paid-off car?

The eligibility criteria for taking a loan against your paid-off car may vary by lender, but will often include: 

  • Being over 18 years of age
  • Being an Australian Citizen or Permanent Resident
  • Having a personal email address 
  • Having a phone number
  • Having a personal bank account with a history of at least three months of transactions

What are the risks involved in taking a loan against a paid-off car?

There are some risks of taking a loan against a paid-off car, as there is with any loan.

If you default on repaying your loan, there is the risk of having your car repossessed, as your car is the security against your loan. Not having a car could make it more difficult to get to your job that lets you earn money to pay off your loans..

However, you can avoid this by ensuring you make your repayments on time, with careful budgeting and by considering all your monthly expenses.

It could also help to consult with an expert before signing any agreements to ensure that you make the right decision.


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Product database updated 16 Apr, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.