Using Your Home As Collatteral on a Bank Auto Loan
A Credit Article Contributed by Kris Griebe
I Went down to the Bank to Get an Auto Loan, They Told Me I Can Use My House As Collateral?
Yes, you can use your house as collateral on an auto loan issued by a bank. Almost any property you own (so long as it is close to, or more than, the value you are borrowing) can be used against a loan as collateral. Banks are becoming more and more flexible in this matter, as they know that your business will make them profit. Because of this, most banks are willing to bend over backwards to try to find a way to help you out. Keep in mind though, not all banks will offer this option, despite the benefits for both parties involved.
Most auto loans issued by a bank will use the car itself as collateral. One major drawback to this is that the bank will require you to have full coverage insurance on the vehicle for as long as you have the loan. This insurance can cost quite a bit! It is, of course, always a good idea to have full coverage, but sometimes it is just not financially practical.
The reason banks require full coverage insurance is so they can cover their investment. If you get in a serious accident and total your auto, and you did not have full coverage insurance, you will not get paid the full worth of the car from the insurance company. This means that the bank has now lost the collateral, and you do not have the cash to pay the loan off! This is a definite lose-lose situation for both parties!
Why Else Would I Use My Home As Collateral for an Auto Loan from a Bank?
By using your home (which will have a greater value than your automobile, or should at least! ), you are providing the bank with peace of mind. They know, if you default on your auto loan payments, they can take your house and sell it for much more than your automobile is worth. This means that they do not have to worry over the value of your car depreciating. Most often, if a bank has to repossess a car, they auction it off. Auctions typically only bring pennies on the dollar.
Are Many Banks Willing to Use My Home As Collateral on an Auto Loan?
Some will turn you down. While this has become increasingly popular among banks and those seeking loans, it is still not common practice. Most banks will still want to use the automobile as collateral, which, once again, requires you to have full coverage insurance. The only way to find out if you can use your home as collateral is to go and talk to your loan representative. They will be able to inform you of every option open to you.
