Using the car as a loan collateral: lower interest rates, but risk of losing the asset

In the face of high interest rates on credit cards, overdrafts and personal credit, the loan with vehicle guarantee has been gaining ground in Brazil as a cheaper credit alternative with longer terms. As it is an operation with real guarantee, it usually offers lower rates than unbacked lines — but the cost of putting the car as collateral goes beyond interest and deserves analysis before hiring.

In this model, the owner uses the car as collateral, but retains possession and use of the vehicle throughout the contract. The car is registered in fiduciary alienation to the financial institution: the property only returns in full to the owner after the discharge. The conditions vary according to the credit policy of each bank, the year of the vehicle and the term chosen, and the amount released usually corresponds to a percentage of the market price of the car.

The main point of attention is property risk. As the asset is responsible for the debt, the delay can lead to the loss of the car: provided for in Decree-Law 911/1969, the search and seizure has a quick procedure, and the judge can authorize the resumption in an injunction, even before the debtor is summoned. Once the vehicle is seized, the owner has only five business days to pay off the full debt and recover it. Worse: the resumption does not automatically end the debt – the car goes to auction and, if the amount does not cover the balance and charges, the consumer still owes it.

The macroeconomic scenario amplifies the alert. The average rate of free credit to households was at 63% per year in April, according to the Central Bank, and household indebtedness is close to 50% of income, close to the historical record, while the delinquency of individuals rose to 5.4%. Taking more credit in an environment of high interest rates and a tight budget increases the chance of not being able to pay the installments.

There is also the issue of fees. Despite being theoretically cheaper, the modality does not always deliver the promised discount: the Court has already considered abusive contracts that, even with the car as collateral, charged interest on personal credit — one of the most expensive lines on the market. Therefore, experts recommend comparing the rate offered with the average released by the Central Bank and reading the contract carefully, keeping an eye on insurance and embedded fees.

The sector also attracts fraud. Financial institutions do not charge advance amounts for analysis or release of credit; Offers with immediate approval and too low interest rates are usually a scam. Consumer protection agencies recommend checking the company’s reputation, checking if it is authorized by the Central Bank and being suspicious of proposals made by social networks or WhatsApp.