Although it's a complicated name, the loan Using a vehicle as collateral isn't rocket science. In fact, it's quite simple. This type of credit is also known as vehicle refinancing, because it accepts an asset that isn't yet fully paid off as part of the transaction. It's simply a practical, safe, and quick way to get money without selling your vehicle, whether it's a car, motorcycle, truck, van, or even a bus.

When taking out a loan using a vehicle as collateral, that is, pledging the asset to the lending institution, it's possible to obtain excellent rates and lower interest with installments that truly fit your budget.

Need money but don't want to get rid of your car? Then come with us, it's a guaranteed success!

When a financial institution provides a loan to people who are in debt or want money to invest in their businesses or achieve some goal such as travel or studies, for example, that lender needs to be sure that it will receive back the amount that was lent. 

In other words, the clearer the institution is that the borrowed money will be returned to its coffers, the greater the possibility of offering credit, charging lower rates and interest, and offering longer repayment terms, since the risk is lower. 

This, therefore, is the logic behind the loan with vehicle warranty alienated. 

The customer offers an asset as collateral to prove that the debt will be paid, and in return, receives the loan without having to stop using their asset.

Here in Brazil, vehicles and houses are the assets most commonly used as loan collateral. 

The first is known as a vehicle-secured loan, and the second as a home equity loan. 

Another form of collateral that is being accepted by financial institutions offering loans is the salary of workers with formal employment contracts. 

This refers to private payroll-deducted loans. 

Similar to what happens with cars and houses, using your salary as collateral for loan payments allows for lower interest rates. 

At this point, you might be wondering: But is it possible to sell a vehicle that is already under lien?

Yes, but don't worry, we'll explain. 

To understand whether taking out a loan secured by a vehicle under lien is a good idea, you first need to understand exactly what it means to encumber a vehicle that is still under lien. 

Whenever a vehicle is purchased through financingTherefore, he is automatically alienated to the company that granted the credit. 

In other words, even though the documents are in the name of the owner who is paying for the vehicle, the car or motorcycle will only be legally owned by that person when all installments have been paid off. 

Taking out a loan secured by a vehicle under lien actually means requesting a refinancing of the debt, using the vehicle itself as collateral, even before it is fully paid off. 

In this case, part of the new loan granted will be used to pay off the outstanding debt with the first institution, while the other part will go to the vehicle owner, who can use the money as they see fit. 

Important: the vehicle will, of course, remain under lien, but now to the new institution that... granted the credit current. 

The term "alienate," according to the dictionary, means to transfer ownership or property of something to another person. 

Talking about a loan secured by a vehicle means that the owner of an asset is willing to transfer their car or motorcycle to a credit institution in exchange for a loan, but without literally handing over the asset.

In other words, the vehicle is merely collateral for the transaction and will only be seized by the lender in the event of default on the financial agreement. 

In the market, this practice is known as fiduciary alienation. Another seemingly complicated expression, but it means that it is a loan with collateral. 

In Brazil, fiduciary alienation emerged in 1965 with the aim of regulating the capital market and replacing the old mortgage.

Since then, secured loans have become a reality for many people here!

You might be wondering if taking out a loan using your vehicle as collateral is a good option.

Before answering, let's give a preliminary explanation!

For a long time, Brazil was known as the country with the highest interest rates in the world. 

The reason for this was credit cards, overdraft facilities, and personal loans, which, because they were easy and quick to access, ended up being widely used by a large portion of the population. 

According to a survey by the Credit Protection Service – the famous SPC – at the end of 2019, the main reason for negative credit records in Brazil was personal loans taken out from banks and financial institutions. 

69% of the people who used this type of credit had a negative credit record. 

Two other major culprits behind non-payment at the time were... credit card – with 67% of users with negative credit scores – and overdraft facilities with 52% of people struggling with their bank credit limit. 

Analyzing this scenario, and answering whether a loan secured by a financed vehicle is a good option, the answer is yes! 

This is because it offers lower interest rates and longer repayment terms, precisely because of the security of having a vehicle as collateral. 

Since the borrower doesn't want to lose the asset, and since the installments end up being smaller due to the reduced interest rates, the default rate among people who use this line of credit is much lower. 

Knowing that the vehicle will remain in the owner's possession is another advantage! 

The person will have the money in their hands without having to stop enjoying their asset. That's why this type of financing is also known as car refinancing. 

Even knowing that seeking a loan secured by a vehicle under lien is a good deal, many questions can arise during the process of acquiring this type of transaction.

So, with the aim of helping you, we've compiled the main questions and answers on the subject to keep you as informed as possible. Let's go?

Currently, it's not just banks that are betting on and offering this type of loan that uses a financed car as collateral. 

New institutions are also entering this market, and because they are smaller companies focused on fewer products and more technology, the loan process tends to be faster and the interest rates offered are lower. 

The most important thing before deciding which institution to take out a loan with secured by a vehicle is to research the company and ask questions of the specialists offering the loan. 

Furthermore, it's also important to compare rates and conditions from different companies. All of this will help you make a more informed choice. 

This is not a very common practice in the market.

However, a customer with a negative credit history can still try to obtain a loan secured by a vehicle under lien, even if their name is on a blacklist. 

What can happen is that the financial institution, after analyzing the client's credit profile, decides not to lend the money because it believes the client will not be able to pay the installments. 

Or, alternatively, grant credit even to those with negative credit histories, but in return, charge higher interest rates. 

Financial institutions generally do not accept vehicles that are more than 10 years old. 

In other words, the newer your car is, the higher the loan amount that may be approved. This will be determined through an appraisal based on the FIPE Table values. 

There are two factors that limit the amount that can be borrowed: it cannot exceed 50% of the car's value, and the refinancing installments cannot compromise more than 35% of your income. 

The vehicle will remain registered in the client's name, but will be held as collateral by the bank or financial institution where the loan was taken out. This means it serves as security for the bank. 

The car will only be out of this situation when the loan is paid off. 

If installments are not paid, the customer's name will be added to a negative credit list, the car will be seized and auctioned. 

Therefore, our recommendation is that even though it's a great way to get credit, you carefully analyze whether the installments of a loan secured by a liened vehicle fit within your budget before closing the deal. 

Now that you know everything and more about loans secured by a liened vehicle and you need credit, seeking this type of deal is full of advantages, as we have just shown you. 

And since we're talking about good but little-known deals, have you ever heard of financing a car through a promissory note?

If your answer was no, then you need to discover this excellent way to buy a car! 

Curious? Click below to learn more about this option!