What is an auto Equity Loan?

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What Is an Auto Equity Loan?
By Amrita Jayakumar Writer The Washington Post Amrita Jayakumar was a former special-assignment writer for NerdWallet. She also wrote a syndicated column on millennials and money, and covered personal loans and consumer credit and debt. Previously, she was a reporter at The Washington Post. Her work has been featured in the Miami Herald and USAToday. Amrita has a master's diploma from journalism at the University ofMissouri.





February 8 7th, 2017


Editor: Kim Lowe Lead Assigning Editor Consumer loans Kim Lowe leads the personal loans editorial team. She joined NerdWallet after 15 years managing the content of MSN.com that covered food, health and travel. She started her career as a journalist for publications covering mortgages as well as the restaurant, supermarket and mortgage industries. Kim obtained a bachelor's degree in journalism from the University of Iowa and a Master of Business Administration from the University of Washington.







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A car equity loan is like an equity home loan, but you use the value of your car instead of your home to get an loan and then pay it the loan back using interest.
Like all , auto equity loans carry risk: If you don't make your loan payments the lender could take possession of your car. If you rely on your vehicle to commute to school or work, the hardship of repossession is clear. In certain instances lenders can hurt your credit if it reports your missed payments to credit bureaus.
With these dangers to your financial security with in mind, we recommend auto equity loans solely for emergency situations and, even in those instances, there are better options for .
Apart from auto equity loans, other methods of borrowing against your car are through the cash-out option, and both of which should be handled with care.
Where can you locate auto equity loans
Most community banks and some credit unions provide car equity loans. The interest rates for these loans depend upon your score on credit, credit history, and the value of your vehicle.
The four largest banks in the country by deposits -the banks - Bank of America, Chase, Citibank and Wells Fargo -- do not offer auto equity loans however, a few smaller banks do.
For federal credit unions the highest annual rate can be charged for such loans will be 18.5%, although there may be extra charges for application.
You could qualify for an auto equity loan from a different source than a community bank or credit union. Many of these lenders, that are online, provide secured loans that have a maximum APR of 36% and two- to five-year repayment terms. Regulators and consumer advocates say 36% is the highest limit of an affordable loan.
Two big lenders offering auto equity loans are and provide secured loans less than 36% for those with low credit scores, typically below 630.
Another lender, , extends auto equity loans to those who have low credit score or less, but they have fees that are in addition to the APR stated, making the loan more costly.
Other ways to get a loan against your vehicle
Auto loan refinancing
is logical when interest rates are dropping and you're unable to meet loan payment. Certain lenders also offer , which let you take a new auto loan with a greater amount than what's left on the original loan. The amount you can borrow varies from lender to lender and usually depends on the amount of equity you own in your vehicle. The new loan replaces the original and you get the additional cash.
Auto title loans
Auto title lenders can provide you with instant cash in exchange for holding the title of your vehicle as collateral, and without checking your credit. This means that you can qualify for a loan even having bad credit however, it also means you are more at risk of failing to pay.
Like payday loans, car title loans carry very high interest rates of around 300%. They are typically due in an extremely short period of time usually 30 days. A high percentage of auto title loan applicants are required extended their loans in accordance with an analysis of the Consumer Financial Protection Bureau, paying additional charges and increasing the possibility of repossession.
Be aware of the importance of car insurance
Whichever type of car equity loan you select the lenders usually require proof of insurance. If your vehicle is already paid off, you may have chosen to carry only liability insurance which is required in all states -- and dropped comprehensive and collision insurance.
If that's the case with you, lenders for auto equity could offer you the chance to purchase a type of insurance, known as an "debt cancel addition" also known as " ," that covers the cost of your loan payments if your car is damaged, you lose your job, or suffer an injury. Unlike comprehensive and collision coverage, credit insurance will not cover the costs of fixing your vehicle.
Credit insurance can be expensive, and it is not part of the overall price of your loan. It is usually cheaper to take out comprehensive and collision insurance instead.
Find .
Consider another item that is worth considering; you will not be putting your vehicle at risk or your credit.



About the writer: Amrita Jayakumar is a former writer at NerdWallet. She previously worked at The Washington Post and the Miami Herald.







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