HomeAUTOMOTIVEThe Ultimate Guide to Auto Equity Loans

The Ultimate Guide to Auto Equity Loans

The reason financial experts ask you to pay off your auto loans as quickly as possible is to build equity in your car. Having positive equity can help you use your car as collateral for financial emergencies and situations where you need quick cash.

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Auto home equity loans are one of the options used by borrowers in such circumstances. This post breaks down everything you need to know about vehicle equity!

What is an auto home equity loan?

An auto equity loan is a type of secured loan that allows you to borrow an amount based on the equity in your car. The equity you own is the difference between the remaining loan balance and the current resale value of the car.

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You can only take out a home equity loan if you have positive collateral on your vehicle, that is, if the resale value is greater than the remaining balance on the loan.

How does an auto home equity loan work?

Home equity loans work similarly to home equity loans, except instead of putting up your house as collateral, you use your car. So a home equity loan is also a secured loan and can help you get affordable rates and a better loan term. However, the amount you can borrow depends on the amount of positive equity you have in the vehicle.

While some lenders will only allow you to borrow an amount equal to the principal, orOthers will allow you to borrow up to 125% of the amount. For example, suppose you own a car with a resale value of $15,000 and a remaining loan balance of $5,000. So the equity you own in the car will be $15,000 $5,000 = $10,000.

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Therefore, depending on the lender, you will be able to borrow between $10,000 and $12,500 (125% of the principal amount). However, not paying the loan back on time can result in a repossession and can also affect your credit score. For this reason, a home equity loan is recommended only for absolute emergencies.

When should I take out a home equity loan?

Home Equity Loans are a quick and easy option to borrow against your car, whether you own it or not.

You may consider taking one in the following situations:

  • When you need one to get quick money for a personal emergency
  • When you know you have good equity in your car
  • If you want lower rates on a secured loan
  • If you are sure you can repay the loan on time however

How can I find out how much equity I have in my car?

You can find the equity you own in the car by subtracting the car’s current resale value from the remaining loan balance you owe on the car loan.

Equity = Current Vehicle Value Remaining Loan Balance

If you get a positive number from the calculation above, you will be eligible for a home equity loan.

What if I have negative equity in my car?

If you have a negative equity in your car, it means you owe more on the loan than the value of the vehicle. This is also called being upside down or underwater on your car loan. Having a negative equity makes you ineligible to apply for a car equity loan, and you’ll have to check other websites for quick cash.

What is the difference between a car equity loan and a car title loan?

While these two terms are sometimes used interchangeably, they are not the same thing.

An Auto Equity Loan requires you to put up your car as collateral, but you don’t have to relinquish title. They also offer longer term loans and affordable rates.

A Car Title Loan provides borrowers with fast cash in exchange for holding the car title as collateral. This is often helpful for bad credit borrowers as they gain access to no credit check loans. However, the interest rates for title loans are very high (up to 300%)which means a much higher rate of vehicle default and repossession.

According to him Mercatus Center, up to 17% of all car title loan borrowers are at risk of default, and at least half of them result in a recovery.

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How to get a car home equity loan

  • Find out the equity you have in the vehicle: You can use vehicle appraisal services like KBB or Edmunds to find the estimated resale value of your car. If you have a good amount of equity in your car, you can proceed with the loan application.
  • Find lenders offering home equity loans: Unlike personal loans, auto home equity loans are only offered by select lenders and credit unions. You can find several excellent lenders online, but be sure to do plenty of rate comparisons before settling on an offer.
  • Apply for and finalize the loan: When you find a lender you like, be sure to review the terms and conditions before you sign. Make sure you are on time with your payments and don’t miss them.

Advantages and Disadvantages of Auto Home Equity Loans


  • Since it’s a secured loan, you get access to lower rates and better terms
  • It is much more reliable than a car title loan, where the title has to change hands.
  • Having positive equity can result in faster approvals
  • You can get cash in no time, as fast as one business day


  • Not all lenders offer it, mostly credit unions.
  • Failure to pay may result in repossession of the car
  • Often requires you to have full coverage insurance
  • Adding one more loan to your current loan can be a burden

Alternatives to Home Equity Loans

Cash Back Auto Loan Refinancing

If you anticipate a future cash shortage due to high monthly auto loan payments, a better option would be to refinance your loan for better terms and conditions. The benefits of doing this are that in addition to lowering your APR and your monthly payment, you can also borrow an additional amount based on the amount of equity in your vehicle.

car title loans

Car title loans offer quick cash, but you will have to relinquish the vehicle title until you pay off the loan. Therefore, choose this option only if you are desperate for funds and can afford high rates in the short term.

Trade in your car / Sell it to a third party

If you think you’re stuck with a bad car loan, you can always trade in your car for a cheaper one. If it’s too old to resell, sell the car and use the money for immediate expenses.

payday loans

Payday loans are short-term, high-interest loans based on how much you earn each month. It does not take into account the borrower’s ability to pay and should therefore be treated with caution.

Personal loans

Taking out a personal loan may be a better option if you have a good credit score and payment history. You can also avoid the need to post collateral.

Home Equity Loans

If you own a home, you can always put it up as collateral and get cash with a home equity loan.

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