Credit security on four wheels: the car deposit

Many people don't realize that they have the credit protection that would be enough to start even a small business: their own car. The reason why many are not yet aware of this: banks do not recognize a vehicle as collateral. The problem is as old as credit itself: If you have standard bank collateral, you basically don't need a loan. Those who need a loan often do not have the usual bank collateral. Escaping this vicious cycle is not easy. But there is a remedy.

Those who cannot get a loan from the bank because their credit rating is not sufficient for it, in most cases turn to their private environment. And that's where the next vicious circle opens up: People who have friends or family members so wealthy that they could help them out with a personal loan usually have enough money themselves or bank-standard credit ratings. Unfortunately, it turns out in most cases that the financial possibilities in the circle of acquaintances or in the family are more or less the same as your own. Therefore, no help can usually be expected from this side either.

An alternative that has developed recently are credit portals. On them, loan seekers register their needs, and many small lenders collectively provide the desired amount – if all goes well. The problem with this is that lending platforms also usually carry out a credit check, and this is roughly similar to that of banks. Even if you make it through the credit check, the loan is not yet in the bag. The lenders evaluate the credit request often very subjectively. In other words: The loan request must "please" them, so that they support it. This often turns the loan application into a game of chance.

Back to the beginning. Basically, there is a high-quality loan collateral: the own vehicle. Stupid only that neither banks nor friends or credit portals recognize that. Here a new player enters the stage: the pawnshop. These useful institutions evaluate and lend objects – completely without credit rating, completely without proof of income, completely without Schufa. So far, however, there has been one drawback to this: regular pawnshops are overwhelmed with lending on high-value items. Their business is in the two- to three-digit range, sometimes even in the four-digit range. This circumstance was the reason for the birth of the car pawnshops.

Car pledge – what is it actually?

Auto pawnshops close the gap in the credit offer for credit seekers in the middle credit range with low creditworthiness. Car pawn is a pawn transaction like any other, only in the higher value range. And a pawn transaction is basically nothing more than a loan – a fact that many are not aware of.

The loan by car pawn can – if desired – be done very quickly. The vehicle is driven up, appraised by the pawnshop, the pawn loan agreement is signed, the amount is disbursed in exchange for the handover of the car's papers – that's it. In rare cases, the pawnshop may ask for a little time for technical evaluation, but even in this case, the disbursement will be much faster than if the loan is granted by the bank.

a woman sits in a car

A loan through the car pawn route comes with some significant advantages. The most important one is of course – as already mentioned – independence from one's own creditworthiness. The rating of Schufa does not matter, as well as the amount of current income. The asset statement can stay in the closet. All that matters is the vehicle, its current value and its technical and optical condition. Only these values decide on the granting of credit. In addition, there is the rapid processing and disbursement.

One aspect that speaks for the loan by car pawn has not yet come up: the variable term. While bank credits – in addition, private loans – usually exhibit a fixed term, the borrower determines by autopledge, when the time for the repayment has come – naturally within the agreed upon pledge running time. The premature repayment is impossible with many conventional credit contracts or connected with substantial additional costs. Not so with car pawn. Here, the borrower determines when it's time – without any deductions.

Credit without credit rating requires responsible action

In order for auto-pledge lending to be an all-around positive experience for the borrower, some honest consideration is required on their end before taking this step.

The ability to take out a pawn loan without a credit check or proof of income is a great opportunity to implement personal plans and achieve goals. But it also requires an open and honest assessment of the personal situation – a self-initiated credit check on one's own behalf, so to speak.

Even if your own income or assets are not proven, they must still be available at the time of repayment – at least if you ever want to see your vehicle again. In other words, there must be a concrete and realistic plan of how the repayment will be made. Therefore, any loan seeker who wants to provide their vehicle as collateral should first ask themselves these questions:

  • Am I in a position to repay the loan??
  • When will be the time of repayment?

If there is a satisfactory answer to both questions, nothing stands in the way of the car deposit. Especially when it comes to the question of whether repayment is possible within a few months, the loan seeker should not indulge in wishful thinking of the kind "it'll work out somehow". There must be concrete indications that the possibilities for repayment are given. This can be either a new job with a decent salary, or the prospect of a larger income, such as an inheritance or severance pay.

This results in the characteristics of the loan by auto pawn. It is not a heavenly gift that lets money flutter into one's lap, the repayment of which is then taken care of by a higher power. It is a bridging measure in the event of a liquidity shortage until the income arrives that makes repayment possible.

A matter of minutes

As mentioned at the beginning, the loan and cash disbursement is processed in a very short time. Only rarely is more than an hour required, usually less. Here's how the process works:

  • Step one: The credit-looking for drives with its vehicle with the auto pawnshop before.
  • Step two: The vehicle is checked and evaluated.
  • Step three: the car pawnshop proposes a loan amount.
  • Step four: The pawn loan agreement is signed.
  • Step five: The disbursement goes to the borrower.

Another advantage with car pawn is the transparency in pricing. In principle, the current value of the presented car is taken into account. A deduction is made from this value as a security deposit. For example, it may look like this: The current value of the vehicle is 20.000 euros. After deducting the security discount of 7.000 euros (example value), the loan disbursement is 13.000 euros. This amount is then used to draw up the pawnbroking contract, which also contains the other conditions, i.e. factors such as interest rate, fees and the pawning period. The possibility to redeem the vehicle before the expiry of the pawn term is also part of the pawnbroking contract.

A look at the disadvantages

As with all interesting things, there are also with the pawn resp. The car pledge some disadvantages that should not be ignored in the overall evaluation. The most obvious is the cost of the loan. A loan to a borrower with a low credit rating naturally represents an increased risk for the lender, which must be compensated financially. The difference to the regular bank loan is the acceptance threshold. This refers to the threshold above which the lender no longer finds the loan acceptable, even with increased credit costs, and rejects the loan.

Anyone who has ever tried to obtain a bank loan with a low credit rating knows that the acceptance threshold with banks is set extremely low. Even with minor credit restrictions, the bank is not willing to grant the loan, not even with increased credit costs. This is the big difference to the car deposit, because here an acceptance threshold is almost non-existent.

What remains, however, is the risk assessment that even a car pawnshop must carry out in order not to get into trouble. As a result, car pledges face higher borrowing costs than are usual for a bank loan. This is not necessarily reflected in the interest rates, which are currently relatively low for car loans. What is noticeable is the deposit fee, which is charged additionally in most cases. It is usually between two and three percent – per month. A bank loan costs about the same, but per year.

The loan seeker should consider the order of magnitude by a concrete example before the final decision is missing. With a loan amount of, for example, 10.000 over six months and a pawn fee of three percent fall for this alone 1.800 euros in addition to the interest on the collateral loan.

The second major disadvantage is the loss of the vehicle during the pledge period. With the classic car pawn, the borrower has no access to the car – it is safely stored in the car pawnshop. If it is not possible to live or work by alternative means of transport, pledging your own vehicle is likely to cause serious problems. Mostly works yes the temporary change to public transport, the bicycle or the motor scooter. But if not, there are few alternatives. From this, one unmistakable fact emerges: if you can't do without your vehicle, you'll have to say goodbye to the car pawn loan option – or maybe not.

Pawn a car and still continue to use it – is that possible??

Increasingly, an alternative form of car pawn, which is offered by a growing number of car pawnshops: the car pawn with the option to continue driving.

Legally, this is not a pledge transaction. Rather, the loan seeker sells his vehicle to the auto pawn shop and then rents it back. In this way, it is possible to pay out the proceeds of the sale in the amount of the desired loan, and yet the seller can continue to use the vehicle. As a rule, this solution is noticeably more expensive than the classic car deposit, because it also includes the fee for the continuous use of the vehicle. Nevertheless, this option can prove to be the ideal solution in special life situations – for example, when a business start-up is underway, but the indispensable vehicle is the only collateral for the loan.

Skillfully timed – the alternative to the drive-on option

In many cases, proper timing can ingeniously solve the problem of an unavailable vehicle. If it's not a current credit need that requires disbursement in the shortest amount of time, time management can serve as a problem solver. Here are two examples:

The summer solution

Credit seekers who miss their vehicle especially in the cold season, while in the warm season it is no problem for them to take the scooter once in a while, should put the pledge date on the spring. So there is enough time over the summer to ensure timely repayment so and to have the well-heated automobile back in time for the onset of winter.

The winter solution

This variant is particularly suitable for owners of a seasonal vehicle such as a motorcycle. So the bike can be pawned exactly in the period in which it would be anyway deregistered and parked unused. In time for the first spring outing, it can then be redeemed again.

Conclusion to the car pawn

The car pawn is the ideal credit solution for people with low credit ratings or for borrowers who value very fast processing and disbursement. Although the costs are higher than with regular bank credits, this alternative is clearly better than to have to do without important projects completely. The disadvantage of not being able to use the vehicle during the pledge period can be avoided with a continued driving option. Timing the pledge can also compensate for all or part of the loss of use.

Vexcash as an alternative to a car pledge

If you do not want to pledge your car you can choose Vexcash as a quick and easy alternative. The risk of debt is very low due to the fixed credit limit and the manageable credit amount. Our small loan convinces its users with an uncomplicated identification, flexible rates and a quick loan approval.

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