Can I Use My Car to Borrow Money?

Home » Can I Use My Car to Borrow Money?

Estimated reading time: 5 minutes

You can use your car to borrow money by taking out a loan that uses your vehicle as security, but doing so comes with higher risk than an unsecured loan. These products are often marketed as quick solutions for people who cannot access standard credit, and they usually involve giving the lender legal rights over your car if you fail to repay. MoneyHelper explains how borrowing against assets works and why secured loans carry additional risks.

The Financial Conduct Authority also regulates car-backed lending and requires lenders to carry out affordability checks and explain the risks clearly before approving any agreement. Below, we explain how car-backed loans work, what to watch out for, and whether they are ever a sensible option.

What Does It Mean To Use Your Car To Borrow Money?

Using your car to borrow money means taking out a loan where your vehicle is used as security. Instead of lending based only on your income and credit score, the lender relies on the value of your car as protection if you fail to repay.

Because the loan is secured against your vehicle, lenders may approve applications that would otherwise be declined. However, this also means you could lose your car if repayments are missed.

What Types Of Loans Allow You To Borrow Using Your Car?

Several types of loans allow you to borrow money using your car as security. The most common is a logbook loan, where the lender takes ownership rights over the vehicle while you continue to use it. Other options include car-backed loans offered by specialist lenders and sale-and-leaseback arrangements, where you sell the car to the lender and lease it back.

Each option differs in cost, legal structure and risk, but all rely on your vehicle as collateral rather than your credit score alone.

Do You Still Own Your Car If You Borrow Money Against It?

In many cases, you do not fully own your car while the loan is active. With logbook loans, ownership is transferred to the lender through a bill of sale, even though the car remains in your possession. This gives the lender the legal right to repossess the vehicle if you miss payments.

With other car-backed loans, ownership arrangements vary, so it is essential to read the agreement carefully before signing.

How Much Can You Borrow Using Your Car?

The amount you can borrow depends on the value of your car, its age, condition and the lender’s criteria. Most lenders offer a percentage of the vehicle’s market value rather than the full amount. Older cars or high-mileage vehicles usually result in lower loan offers.

Loan amounts are often smaller than expected, especially when fees and interest are taken into account.

What Checks Do Lenders Carry Out Before Approving A Car-Backed Loan?

Lenders carry out affordability checks, income verification and vehicle checks before approving a car-backed loan. Even though the loan is secured, lenders must still confirm that repayments are affordable. They may review bank statements, payslips and household expenses.

The vehicle itself will also be assessed to confirm ownership, value and whether it is already subject to finance.

What Are The Risks Of Using Your Car As Security For A Loan?

The main risk of using your car as security is losing it if you fall behind on repayments. Your car may be essential for work, childcare or daily life, and repossession can have serious consequences. Interest rates on car-backed loans are often high, which increases the total cost of borrowing.

Missing payments can also damage your credit score, making future borrowing even harder.

How Does Using Your Car To Borrow Money Affect Your Credit Score?

Using your car to borrow money can affect your credit score in the same way as other loans. Making payments on time can help build positive credit history, while missed payments or defaults will damage your score.

Some car-backed lenders report to credit reference agencies, while others do not. Either way, financial difficulty linked to the loan can still impact your wider credit profile.

Can You Use Your Car To Borrow Money If You Have Bad Credit?

You can use your car to borrow money even if you have bad credit because the lender relies on the vehicle as security. This makes these loans accessible to people who may not qualify for standard personal loans.

However, bad credit borrowers often face higher interest rates and stricter terms, increasing the risk of losing the car if repayments become unaffordable.

Are There Safer Alternatives To Borrowing Money Against Your Car?

There are safer alternatives to borrowing money against your car, depending on your situation. Personal loans, credit union loans and budgeting advances may offer lower costs and less risk. Some people explore payment plans with creditors or employer support schemes instead of taking secured credit.

These options may take longer but reduce the chance of losing essential assets.

What Should You Consider Before Using Your Car To Borrow Money?

Before using your car to borrow money, you should consider whether you can afford repayments if your circumstances change. Think carefully about how losing your car would affect your work and daily life, and compare all alternatives first.

Understanding the full cost of borrowing, the lender’s repossession rights and your long-term financial position is essential before committing.

You can use your car to borrow money, but it is one of the riskier forms of borrowing available. While car-backed loans may offer access to credit when other options are limited, they place an essential asset at risk and often come with high costs. Exploring alternatives and understanding the consequences fully can help you avoid unnecessary financial harm.