Car equity loans can be compared to home equity loans except that instead of using your home value, here you use your car’s value and pay interest on that.
A car equity loan is a little different from a car title loan even though on the face of it, these both may appear to be the same. While they have many similarities, the difference is that in car equity loans the lender refinances the existing car loan.
Car equity loans are based on the equity you hold in your vehicle. This is the amount you get after subtracting the remaining existing car loan from the current value of the car. You need to have a clear title on the car. A lender might not entertain you if you do not own your car outright.
The amount of loan depends on the lender. However, the borrowing amount is never the complete value of equity. Your vehicle is the collateral in these loans. Hence, you are always at a risk of losing your car in case of a default.
The lender has the right to repossess your car and sell it to recover his losses. That said these loans usually come with a lower interest rate as compared to car title loans which makes them a slightly better option.
Car equity loans are a popular option with borrowers in need of quick short term cash. They have an easier chance of approval that is fast paced. These loans also provide large maximum limits based on fair market value of your car. Here are some key factors associated with car equity loans.
States have closely guarded rules on the borrowing amount as based on the fair market value of the car. This makes it easy to apply for a loan as you know the exact amount you can qualify for.
You can get an auto equity loan without the risk of being cheated of a fair value from the lender, and its worth shopping around to find the best online lenders. The state dictates the maximum amount of money that can be loaned to a borrower. You just need to make sure to read up on the state rules.
Car equity loans are generally offered by private institutions who want to reduce their risk as much as possible. Hence, loans are offered only on fully owned vehicles. This helps the lenders complete a quick approval process and grant loans to the majority of applicants.
These loans come with short repayment period. People try to look for shorter repayment terms in order to pay off their loan as quickly as possible. Short term loans are always less expensive than long term ones in terms of interest amount.
However, you need to be careful to repay the whole amount on time because the APR of interest is usually high in car equity loans which can prove to be very expensive. Many lenders offer to extend the repayment period which is a big advantage.
Most lenders have a quick approval process and a faster loan disbursement. In some cases you can have the loan amount in your bank as quickly as within the hour.
Car equity loan providers also have physical locations in many states where you can apply for a loan, get instant approval, and drive away with the cash. Just don’t go buy a bunch of shoes you don’t need with that cash.
You are not Cher from the movie Clueless!
Auto equity loans work in the same way as car title loans. You can continue the use of vehicle as normal. However, the car title is held by the lender because it is used as collateral.
You can drive your car as normal once you have the loan amount. You just need to make sure that you never default on the loan payments. A lender always has the legal right to repossess your vehicle and sell it to cover his losses.
There are multiple benefits of car equity loans as stated below:
There are many lenders who will give you the option to extend your loan for up to a year. This can come in handy when your financial situation is not looking up. It also prevents you from losing the title on your vehicle for a couple of months till you can come up with the loan amount.
There are a number of emergencies where you need quick cash such as medical emergency. Car equity loans are a salient option when you cannot borrow from friends and family.
Many lenders have 100% online presence and work round the clock. You can collect cash from their physical locations instantly after your loan gets approved. Lenders pride themselves on their fast approval and efficient loan handling process.
The best part about a car equity loan is that lenders do not perform a credit check. You can get a loan even if your credit score is poor or you have no credit history at all.
Lenders use your car as collateral and are secure in the knowledge that they can sell it to recuperate any losses. Though if you drive a car like that beat up one in Trains, Planes, and Automobiles they will not be interested in that! To this effect some lenders might require GPS or starter interrupt device installed in your vehicle.
Frank Martin in The Transporter certainly would not be interested in that!
Traditional lenders such as banks and other financial institutions conduct extensive checks in your repayment history and require an average to good credit score to consider giving a loan. The approval process can take weeks and might result in a negative reply.
Car equity loans are better in terms of quick loan disbursals and easy repayment options. However, these loans tend to have a higher interest rate than traditional loans.
You can get loans as small as $100 to be repaid within 15 days in car equity loans. These loans make it easy to get through the week when your paycheck gets delayed or there is an emergency.
Car equity loans require vehicles that are fully owned. You need to have some equity in the vehicle to qualify. These loans can come in very handy if you are in need of immediate cash and have a poor credit score.
However, like with any type of debt, you need to be responsible and pay the loan back in full on time. Otherwise, you might incur significant penalties and high interest charges.