A car equity Loan allows you to borrow against the equity you have built up in your vehicle; this means using your car’s value as collateral to access cash—potentially even if you still owe money on an auto loan. This guide details typical uses, mechanics, eligibility, key costs, and official points to verify for anyone considering a car equity loan.
Who This Loan Is For
Borrowers who own their vehicle outright or have substantial equity built up.
Individuals seeking a lump sum for emergencies, debt consolidation, or large expenses, who may not qualify for unsecured personal loans.
Those who may prefer lower rates associated with secured loans over some unsecured options.
Applicants looking to leverage their vehicle as collateral, including some who may still have an outstanding car loan balance.
Key Facts (At-a-Glance)
Item
Details
Loan Type
Secured (car equity loan, vehicle title loan variant)
Purpose
Debt consolidation, major purchase, unexpected expenses, or cash needs
Amount Range
Sample/illustrative: Typically up to 25%-70% of the car’s current value, minus any existing loan balance
Term Length
Sample/illustrative: Commonly 12–60 months; varies by lender and jurisdiction
APR
Fixed or variable; varies by applicant/lender; may range from rates close to prime to significantly higher for subprime borrowers
Representative Example
Sample/illustrative: $7,500 borrowed at 18% APR over 36 months results in est. $272 monthly payment; total paid: $9,792
Fees
Sample/illustrative: Origination fees, lien recording fees, late fees may apply. Always check lender’s official fee disclosures.
Collateral
Secured by vehicle title; vehicle may be repossessed if default occurs
Eligibility
Typically based on equity in vehicle, credit history, and proof of income or ability to repay. Some lenders permit loans while an existing car loan is active, but amount is reduced by remaining balance.
Funding Speed
General range: same day to several business days; faster with all documents in order
Payment Frequency
Monthly installments; some lenders may offer biweekly options
Pros
Access to cash based on your car’s value—often faster funding than unsecured loans.
Secured status may yield lower rates than unsecured personal loans for qualified applicants.
You may qualify even with less-than-perfect credit (due to collateral).
Flexible use of funds (unlike auto purchase loans, which require buying a specific vehicle).
Cons
Origination fees and lien registration add to costs.
Car is at risk of repossession if you miss payments.
High APRs may apply, especially with lenders serving credit-challenged applicants.
Borrowing amount is capped by available equity: you may not qualify if you owe more than your car is worth (“negative equity”).
Term lengths may be short—potentially leading to higher payments.
Costs, Interest & Total Repayment
APR reflects true borrowing cost, combining interest rate and fees (e.g., origination, documentation, title fees).
Amortization means each monthly payment includes interest and reduces principal; early payments are mostly interest, principal reduction increases over time.
Late fees apply if payments are missed; some lenders charge prepayment penalties—consult the official loan agreement.
Origination fee, if present, is often deducted from disbursed amount or added to the principal.
Sample amortization is shown below (“sample/illustrative”).
Example
Amount
APR
Term
Monthly Payment
Total Paid
Sample Scenario
$7,500
18% (sample/illustrative)
36 months
$272
$9,792
Eligibility, Underwriting & What Lenders Evaluate
Lenders assess your current equity: car’s value minus any outstanding loan balance.
Credit history, debt-to-income (DTI) ratio, and proof of income may impact terms, though some lenders focus primarily on collateral.
A “soft pull” pre-qualification often precedes a “hard inquiry” at formal application, affecting credit score.
Policies and documentation requirements vary; confirm criteria on each lender’s official page.
Application Steps
Check your equity by finding your car’s market value and subtracting any existing loan balance.
Pre-qualification (optional): estimate terms, impact, and amount.
Gather documents: car title (or loan details if you still owe), proof of insurance, proof of income, government ID.
Submit a formal application online or in person.
Lender verifies your application, reviews your car’s value (sometimes with a physical inspection), and runs credit checks.
Upon approval, sign loan agreement; lender places a lien on your vehicle’s title.
Funds disbursed (cash or direct deposit); repay in monthly installments per agreement.
Risk Factors & Responsible Borrowing
Default may result in your car being repossessed; loss of transportation may impact daily life and work.
Falling behind can damage your credit score and trigger late fees.
Variable-rate versions could mean rising payments over time.
Borrow only as much as you can repay; keep in mind the impact of total interest paid.
Alternatives & Comparisons
Notable Alternatives
Personal loans (unsecured: do not require collateral but may have higher APRs for lower credit scores).
Balance transfer credit cards with introductory 0% APR periods (good for short-term, lower sums if you qualify).
Home equity loans or home equity lines of credit (HELOCs) if you own property with available equity and seek larger sums.
Credit union loans (may offer lower rates and better terms for members).
In-house merchant or dealer financing (for purchases or repairs).
Side-by-Side Comparison
Feature
Car Equity Loan
Unsecured Personal Loan
HELOC
APR
Varies; often 8–36% (sample/illustrative)
Varies; often 6–36% (sample/illustrative)
Varies; often lower if secured by home (sample/illustrative)
Fees
Origination, title fee, late
Origination, late, possible prepayment
Appraisal, origination, maintenance
Term
12–60 months (sample)
12–84 months
5–20 years (draw + repayment)
Collateral
Yes (car)
No
Yes (home)
How to Reduce Costs
Compare multiple lenders’ official APRs, origination and title fees before deciding.
Read each lender’s fee table; avoid optional “add-ons” that increase borrowing costs.
Shorter term loans typically cost less in total interest (if you can manage higher payments).
Ask about autopay discounts and review the early payoff policy for prepayment penalties.
Ensure you understand late fee structures and grace periods before committing.
Frequently Asked Questions
Can I get a car equity loan if I still owe on my car?
You may qualify if your car’s value exceeds your remaining loan balance (“positive equity”).
Loan amount is generally capped by available equity.
Owing more than your car is worth (“negative equity”) usually disqualifies you.
What happens if I miss payments on a car equity loan?
Lender may charge late fees and report missed payments to credit bureaus.
Your car could be repossessed if you default.
Credit score typically impacted negatively.
How is my car valued for a car equity loan?
Lenders use vehicle guides (e.g., Kelley Blue Book) and may require physical inspection.
Valuation considers make, model, year, mileage, and condition.
You’ll receive a loan offer based on this appraised value minus any outstanding debt.
Conclusion & Next Steps
Car equity loans suit borrowers with positive equity who need cash quickly and are comfortable using their vehicle as collateral.
Risks include origination/fee costs and the possibility of losing your vehicle if you cannot repay.
Alternatives such as unsecured loans or HELOCs may fit better for those with strong credit or property equity.
Always check the most recent official disclosures on lender and regulator websites for updated rates, terms, and eligibility.
