A car collateral loan (also called a car title loan) lets you borrow money using your vehicle as security. Unlike traditional loans, these are easier to get approved – even with bad credit. But how does it actually work? Essentially, you’re trading your car’s value for cash while still keeping the keys.
In Malaysia, these loans are particularly popular because:
Approval rates are higher than personal loans
You can still drive your car during repayment
Loan amounts are based on your car’s value
Processing is faster than conventional loans
How Bad Credit Affects Loan Applications
Having a bad credit score (typically below 600 in Malaysia’s CCRIS system) makes getting traditional loans nearly impossible. Banks see you as high-risk and either reject applications or charge exorbitant interest rates. But here’s the good news: car collateral loans are different because:
✓ The car acts as security
✓ Lenders focus more on asset value than credit history
✓ Specialized lenders cater specifically to bad credit borrowers
Car Collateral Loans vs Traditional Loans for Bad Credit
Approval Chances Comparison
| Loan Type | Approval Rate for Bad Credit |
|---|---|
| Personal Loan | 10-20% |
| Credit Card | 5-15% |
| Car Collateral Loan | 60-80% |
Interest Rate Differences
While you’ll pay more than someone with good credit, rates are still better than unsecured options:
Personal loans for bad credit: 15-24% p.a.
Car collateral loans: 8-15% p.a.
Eligibility Requirements for Bad Credit Borrowers
Minimum Credit Score Needed
Most car collateral loan providers accept borrowers with:
CCRIS rating of 3 or below
CTOS score above 300
No active bankruptcies
Alternative Qualification Factors
When credit is poor, lenders look at:
✔ Car value and condition
✔ Proof of income (even informal)
✔ Employment history
✔ Existing debt obligations
Documents Needed to Apply
Prepare these documents to speed up your application:
Original car grant (no outstanding loans)
Valid road tax and insurance
IC (Malaysian citizen/PR)
3-6 months bank statements
Proof of address
Latest salary slips (if employed)
Step-by-Step Application Process
Get your car valued – Visit lenders for free appraisals
Compare offers – Look at 3-5 different providers
Submit documents – Complete the paperwork
Sign agreement – Review terms carefully
Receive funds – Typically within 24-48 hours
Top Lenders Offering Car Collateral Loans
Banks vs Licensed Money Lenders
| Banks | Licensed Money Lenders | |
|---|---|---|
| Approval Time | 3-7 days | 1-2 days |
| Max Loan | 70% of value | 50-60% of value |
| Credit Check | Strict | Lenient |
Interest Rates and Fees to Expect
Here’s what bad credit borrowers typically pay:
Interest: 8-15% p.a.
Processing fee: 1-3% of loan amount
Insurance: Must maintain comprehensive coverage
Late payment: 1-2% per day
Pro Tip: Always calculate the total cost before committing!
Risks of Getting a Car Collateral Loan
Repossession Risks
If you default (miss 3+ payments), lenders can:
Issue warning notices
Install GPS tracking
Repossess your vehicle
Sell it at auction
Hidden Charges to Watch For
Early settlement fees
Documentation charges
Valuation fees
Insurance top-ups
Tips to Improve Approval Odds
How to Strengthen Your Application
Get your car professionally cleaned before valuation
Show alternative income sources
Bring a guarantor if possible
Offer to make larger down payment
Alternative Solutions
If denied, consider:
➤ Peer-to-peer lending
➤ Salary advance from employer
➤ Selling unnecessary assets
➤ Credit counseling services
Success Stories: Real Cases in Malaysia
Case 1: Ahmad, 34 (CTOS 450)
Borrowed RM25,000 against his 2018 Honda City
Used funds to settle medical bills
Repaid within 2 years without issues
Case 2: Siti, 28 (CCRIS Rating 3)
Got RM15,000 loan against Perodua Myvi
Started small catering business
Now has improved credit score
Frequently Asked Questions
Can I get 100% of my car’s value?
No, maximum is typically 70% for good condition cars.What happens if my car gets stolen?
The insurance payout will first settle your loan balance.Is there an age limit for the car?
Most lenders accept cars up to 10 years old.Can foreigners apply?
Usually no, unless with permanent residency status.How quickly can I get the money?
As fast as same-day with licensed money lenders.
Conclusion: Is It Worth It?
Getting a car collateral loan with bad credit in Malaysia is certainly possible, but comes with trade-offs. While easier to qualify for, the risks of losing your vehicle are real. Carefully weigh:
Your ability to repay
Total cost of borrowing
Alternative options available
For many with bad credit, it’s a practical solution when handled responsibly. Just remember – your car isn’t just transportation, it’s now your financial safety net too.
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