What Is an Auto Equity Loan?

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What is an Auto Equity Loan?
Written by Amrita Jayakumar Writer The Washington Post Amrita Jayakumar was a former special-assignment reporter for NerdWallet. She also wrote a syndicated column about the financial situation of millennials, and wrote about personal loans and consumer credit as well as debt. Prior to that, she was reporter for The Washington Post. Her work has appeared in newspapers such as the Miami Herald and USAToday. Amrita has a master's diploma in journalism from University of Missouri. University ofMissouri.





February 8, 2017


Editor: Kim Lowe Lead Assigning Editor Consumer loans Kim Lowe leads the personal loans editorial team. Kim Lowe joined NerdWallet following 15 years of in charge of content for MSN.com, including travel, health and food. She started her career as a writer for magazines which covered mortgage food, restaurant and supermarket industries. Kim received her 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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An auto equity loan is like the home equity loan, but you use you vehicle instead of your house to obtain the loan which you pay back with interest.
Like all , auto equity loans carry risk: If you aren't able to pay your loan payments the lender could take possession of your vehicle. If you rely on your vehicle to commute to work or school the burden of repossession is clear. In certain instances, the lender can also harm your credit in the event that it reports your late payments to the credit bureaus.
With these dangers to your financial stability with in mind, we recommend auto equity loans exclusively for situations of emergency -- and even when you are in a pinch, there are better alternatives .
In addition to auto equity loans Other methods to borrow against your car include with the cash-out option, and both of which should be used with caution.
Where to locate auto equity loans
Most community banks and some credit unions provide auto equity loans. The costs for such loans are based on your credit score, your credit history, and the worth of your car.
The four largest banks in the country by deposits -- Bank of America, Chase, Citibank and Wells Fargo are not able to offer auto equity loans however, a few smaller banks do.
In federal credit unions, the maximum annual percentage rate that could be charged on such loans can be 18%, however, there could be additional charges for application.
You might be eligible for an auto equity loan from a different lender than a community bank or credit union. These lenders, a majority of that are online, provide secured loans that have a maximum APR of 36% and two- to five-year repayment timeframes. Consumer advocates and regulators agree that three percent is considered to be the maximum threshold for an affordable loan.
Two big lenders for automobile equity loans are and , which provide secured loans below 36% to those with low credit scores, generally under 630.
Another lender extends automobile equity loans to borrowers with credit scores that are lower, however it charges fees on top of its APR, which makes the loan more expensive.
Other options to borrow against your car
Auto loan refinancing
makes sense if interest rates drop, or if you're unable to meet loan payments. Certain lenders also offer , which let you take a new auto loan for a higher amount than the remaining balance on your original loan. This amount is different for each lender and usually depends on how much equity you have in your car. The new loan replaces the original and you keep the extra cash.
Auto title loans
Auto title lenders offer instant cash in exchange for the title of your car as collateral, and without checking your credit. This means that you are able to get a loan even when you're not a credit-worthy person, but it also means that you could be at greater risk of being in default.
Like payday loans, car title loans have very high interest rates -- around 300% and typically due within a short time period generally 30 days. A significant proportion of title loan customers are forced the need to prolong their loans in accordance with an investigation by the Consumer Financial Protection Bureau, incurring additional fees and raising the risk of repossession.
Make sure you have your car insurance
Whatever kind of auto equity loan you select The majority of lenders require proof of insurance. If your car is paid off, you might opt to just carry liability insurance -- which is mandatory in most states -- as well as dropped collision and comprehensive insurance.
If that's the case with you, then auto equity lenders might offer the option to purchase a form of insurance, known as an "debt cancellation additional" also known as " ," that covers your loan payment if your car is damaged, you are unable to keep your job, or suffer an accident. In contrast to collision and comprehensive coverage, credit insurance does not cover the cost of repairing your car.
Credit insurance is expensive It isn't as part of the cost of your loan. It's usually cheaper to purchase comprehensive and collision insurance instead.
Find .
Take a look at other items worth your money; you don't put your car at risk, nor your credit.



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







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