Can a Car Still Under Installment Loan Be Used as Collateral for Another Loan?
3 Answers
A car under an installment loan cannot be used as collateral for another loan until the existing loan is fully repaid. Relevant information: Specific reasons: Because the ownership of any mortgaged vehicle belongs to the lending institution, and the car owner only has the right to use it. Since the installment vehicle has not yet been fully repaid, the ownership does not yet belong to the individual, so it cannot be mortgaged. Legal basis: Article 33 of the "Guaranty Law": The term 'mortgage' as used in this Law refers to the act where the debtor or a third party, without transferring the possession of the property listed in Article 34 of this Law, uses such property as security for the claim. If the debtor fails to perform the obligation, the creditor shall have the right to be paid with priority from the proceeds of the discounted price, auction, or sale of the said property in accordance with the provisions of this Law. The debtor or the third party specified in the preceding paragraph is the mortgagor, the creditor is the mortgagee, and the property provided as security is the mortgaged property.
I once researched a similar issue because I own two cars, one of which is still under a mortgage. Generally, it's not easy to use a car that's still being paid off as collateral for another loan. The main reason is that when you buy a car, the bank already has a priority lien on it. If you then mortgage it to another institution, in case of financial trouble, both creditors would compete for that car, which is too high a risk for many people and institutions to take. I've seen many case studies online where people tried this, only to end up with soaring interest rates, doubled repayments, and even damage to their overall credit. The best approach is to first pay off the existing car loan before considering using it as collateral. If you urgently need funds, you might try an unsecured personal loan or other asset options, which are safer and more hassle-free. In short, don't take shortcuts—carefully assess your capabilities to avoid losing more than you gain.
Speaking from daily car usage experience, I find this topic quite interesting. While the car is still under installment payments and theoretically eligible for a second mortgage, the reality is far more complicated. The bank already holds a claim, so applying for a new auto loan would trigger additional scrutiny—usually requiring higher credit scores and income proof. I recall my friend at the 4S dealership mentioning that a handful of specialized lenders might take on such cases, but with outrageously high interest rates and extra fees tacked on. My personal advice: prioritize settling your existing loan to avoid unnecessary complications; alternatively, consult a financial advisor directly to explore debt consolidation options—keeping life stable by avoiding dual debt traps is what matters most. Hope this perspective helps—proceed with caution.
