You need cash to get you through a tight spot, but you can’t qualify for a traditional bank loan, which would take too long to process anyway. You’re wondering whether you should get an auto equity loan, which would allow you to borrow against your car’s value. Here’s what you need to know.
What is an Auto Equity Loan?
These are short-term loans that derive from your vehicle’s value. While not offered by the nation’s largest banks, they are available from some credit unions and online lenders.
Because this is a secured loan, your odds for procurement are generally higher than for a traditional personal loan. The other side of that, though, is that you could lose your vehicle if you fail to make payments as agreed to in your contract.
Loans are possible even if you owe money on your vehicle. So, note that if you’re still making payments on the secured vehicle, you’ll be adding a loan payment to your bills.
How Much Can I Borrow?
The lender will make an offer based on the fair market value of your vehicle, your income, your credit history, and the equity you have in your vehicle. Your equity is the difference between your auto loan balance and the amount your car is currently worth. If your loan is paid off, your equity is equal to the car’s current market value. If you still owe, your equity would be the same as the car’s current value less your loan balance.
What is the Application Process Like?
When applying for an auto equity loan, the lender will typically determine your car’s value and how much equity you have, and make sure the vehicle is registered in your name. You will have to submit proof of income and full vehicle coverage.
Can an Auto Equity Loan Hurt My Credit?
It could, but only if you fail to make timely payments. If that happens, or if your vehicle is repossessed, the auto equity lender will alert the credit bureaus. In turn, your scores may be negatively affected.
Auto Equity Loan vs. Vehicle Title Loan
Another option when you’re experiencing a financial emergency is a vehicle title loan. These short-term loans are not issued by financial institutions but by companies called title lenders.
Another big difference between the two kinds of loans is that title loan companies don’t focus on your credit report. In fact, it’s very possible to get a title loan with a bad credit history.
You will need to own a car outright and have possession of the title, which will be used to secure the loan. It will be returned to you when you pay off the loan. You can keep your car while you’re making payments. But, as with auto equity loans, you could lose your vehicle if you fail to make payments.
How Much Can I Borrow with a Vehicle Title Loan?
The lender will base its offer primarily on the vehicle’s make, model, age, mileage, and overall condition, and on any modifications or alterations. You’ll need to submit recent photos of the vehicle from all angles, plus shots of the odometer and vehicle information number.
You will also need to show proof you can repay the loan, usually in the form of paystubs or bank statements. If you aren’t employed but have alternate income such as from Social Security, self-employment, or a rental property, that likely would work as well.
The title loan process is quite fast. In most cases, you can apply totally online, and get an answer that day. Once approved, your cash could be in hand by the next day.
Can a Title Loan Hurt My Credit?
Title loan companies, unlike some auto equity lenders, generally don’t report to the credit bureaus. However, some will make a positive report to credit agencies – after you’ve paid the loan off. In that way, a title loan could even help your credit.
Both auto equity loans and title loans can potentially help you out of a rough patch. If credit is a concern, a title loan may work best. Size up the two types of loans and see what’s right for you.