Several short-term loan options are available for people who need money quickly, including auto equity loans.
Here’s everything you need to know about auto equity loans and whether this is the right option for you.
Table of Contents
What Is an Auto Equity Loan?
An auto equity loan is a type of loan in which the borrower uses the equity in their vehicle as collateral in exchange for a loan. The equity in a car is the difference between its market value and the balance of any outstanding loans or liens.
In other words, the loan is based on how much profit could be made by selling a vehicle after the initial financing is paid off.
What Are the Pros of an Auto Equity Loan?
The primary benefit of this short-term loan strategy is the lack of credit score requirements. Many auto equity loan bad credit providers don’t check your credit history or don’t include it when calculating your eligibility. This is a viable option for people without access to traditional loans.
Auto equity loans also have a quick turnaround. It typically takes a few minutes to apply online, with approval taking a few days at most. This feature benefits those who need funds quickly to cover an emergency expense.
What Are the Cons of an Auto Equity Loan?
The main disadvantage of an auto equity loan is the high-interest rate. High-interest rates are standard with short-term loans and often cost less in the long run than long-term loans. However, the high-interest rate does create complexity when budgeting your payment plan.
Another disadvantage is that your loan amount must be comparable to the equity of your vehicle. If you still owe a lot of money to your initial financer or your car lacks value, you may not get approved for the amount you need.
Finally, defaulting on this loan doesn’t just impact your credit score: it means the lender can repossess your vehicle. Taking your time and ensuring you can meet the loan terms before signing is essential.
Can You Get an Auto Equity Loan With a Financed Car?
You aren’t required to have your car completely paid off to qualify for an auto equity loan — another benefit to this approach. This factor is the main difference between equity loans and title loans. However, the amount owing on your vehicle will influence how much money you’ll be approved for.
What’s Required To Apply for an Auto Equity Loan?
In addition to having equity in your car, the lender will want to confirm that you have the means to pay the loan back. While the collateral is a safety net for the lender, receiving payment is preferable for all parties involved. Repossessing and selling a car takes extra time and money, cutting the lender’s profit.
A lender will assess your eligibility by looking at proof of income and recent pay stubs. They’ll also want proof that the car is in your name and fully covered by insurance.
This short-term loan option is only suitable for some, but it’s a viable solution for those with a financed vehicle who need money quickly. Read the terms closely and keep these critical considerations in mind.
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