Understanding auto equity loans

Quick insights

If you’re in a financial pinch or looking to adjust your finances, you may be considering an auto equity loan. Similar to a home equity loan, an auto equity loan is a type of secured loan where you borrow against the value of your car. Let’s take a closer look at what these loans offer. Note: Chase does not currently offer auto equity loans.

What is an auto equity loan?

To understand how much you could receive through an auto equity loan you take the car’s value and subtract any outstanding loan balances. For example, let’s say you have a car that is worth $20,000. If you currently owe $10,000 towards your car, the equity of your car would be $20,000 - $10,000 = $10,000. In this scenario, the $10,000 is the amount of money you would be able to borrow via an auto equity loan.

An auto equity loan is a secured loan, meaning that if you don’t make your payments, you could be at risk of having your car repossessed by the lender. That's why it can be important to review the terms and conditions of the loan before moving forward.

Auto equity loans may be available for a variety of automobiles, such as cars, trucks and motorcycles.

Auto equity loan vs. auto title loan

For a faster approach to accessing cash, auto title loans offer a way to access funds by having your lender hold the title of your car as collateral. Auto title loans differ from auto equity loans in that they typically come with shorter terms and increased interest rates. Additionally, an auto title loan is only a partial equity loan, meaning only a percentage of the car’s value makes up the loan. Depending on the lender, it’s possible you may have to own your car from the start. 

Auto title loans may be an option for those who have low credit scores, as you don’t necessarily need a high credit score to get an auto title loan. However, it’s important to review the terms and conditions, as they tend to come with higher interest rates.

Auto equity loans generally base interest rates on several factors, such as your credit score, type of car and more. They may be used to borrow up to the car’s total value, but the terms may differ. Your credit score is also considered when determining your rates and terms.

Pros and cons of an auto equity loan

As with any financial decision, it can be helpful to weigh the potential pros and cons. 

Pros

Cons

Where to get an auto equity loan

Auto equity loans are not as commonly offered by banks and issuers as other types of loans. However, some banks, credit unions and online lenders offer auto equity loans—you may have to do some initial research to find out where they are.

Wherever you decide to apply for an auto equity loan, it can be beneficial to make sure you are using a reputable source and review the terms and conditions, as well as state-specific regulations that might affect your terms.

Alternatives to auto equity loans

There may be a few reasons why you want to choose an alternative to an auto equity loan, such as having access to funds that are more than the value of your car. If you’re strapped for cash but don’t want to risk repossession of your car, there are a few alternatives you may want to consider:

Depending on your financial goals, you may not want to apply for a loan at all. You could strategize and repay debts using certain methods, such as following a debt management plan or working with your lender to potentially negotiate terms and loan payments on other debts. 

Conclusion

Auto equity loans can be hard to come by, as they are not widely offered. However, you may find a lender who can offer this type of loan, or perhaps an auto title loan, and gain access to funds you need quickly. It can be helpful to review the terms and conditions of these loans and assess if you can make your loan payments, as you are putting your vehicle at risk of repossession. If you don’t want to risk your ownership of your car, there may be alternative methods to getting the cash you may need.