Auto Equity Loans Explained: How to Get Funds from Your Car

A Simple Guide to Vehicle Equity Loans

Auto Equity Loans: What to Know

Many vehicle owners don’t realize they can borrow against their car’s equity even if it isn’t fully paid off. These secured loans allow you to access cash using the portion of your vehicle you already own. Unlike car title loans, which require full ownership, equity loans may work with cars that still have an outstanding balance.

These equity loans may seem like a convenient way to get fast cash, but there may be downsides to consider. Because the loan is secured by your vehicle, rates may be lower than unsecured options. However, defaulting means your car could be repossessed.

What Is an Auto Equity Loan?

An auto equity loan uses the paid-off portion of your car’s value as collateral. Equity is calculated as the difference between the vehicle’s market value and the amount you still owe. For example, if your car is worth $20,000 and your remaining loan balance is $9,000, you have $11,000 in equity.

Lenders may allow you to borrow 50%–100% of that amount, though some offer more. The process typically involves providing details about your car, proof of insurance, and financial documents such as income and credit history. Funds are usually deposited directly into your account once approved.

Who Qualifies?

To be eligible, you need equity in your vehicle—either owning it outright or owing less than its worth. Lenders also consider income, credit history, and insurance coverage. Some place limits vehicle age or mileage.

Because the loan is backed by collateral, approval standards can be more flexible than those of unsecured loans, making them accessible to borrowers with less-than-perfect credit. However, consumers can likely secure better terms if they take steps to improve their credit score.

Auto Equity Loans vs. Title Loans 

Although the terms are often confused, they differ significantly. Title loans require you to fully own your car and typically must be repaid in 15–30 days at very high interest rates. Equity loans, by contrast, can be obtained with partial ownership and usually have longer repayment terms.

Title Loans..

• Require Paid Off Vehicle

• Short Repayment Terms

• More Common Predatory Practices

Equity loans vs. personal loans Unsecured personal loans don’t require collateral, which eliminates the risk of losing your car. However, rates are usually higher since lenders have no assets to claim if you default.

Equity loans vs. refinancing Refinancing replaces your existing loan with a new one, usually to lower rates or extend repayment. An equity loan adds a second loan on top of your original auto loan, which can complicate repayment.

Pros and Cons of Auto Equity Loans

Advantages

• Faster approval and funding compared to many alternatives.

• Interest rates may be lower than credit cards or unsecured personal loans.

• Easier approval for borrowers with weaker credit histories.

• Flexibility in how funds can be used.
  

Drawbacks

• Risk of repossession if you fall behind on payments.

• Limited availability; many major banks don’t offer them.

• Full coverage insurance is usually required, which may increase costs.

• Extra fees (lien filings, taxes) can add to the balance.

• Creates two simultaneous obligations: your original loan plus the equity loan.
  

How to Get an Auto Equity Loan

1. Calculate equity: Subtract your outstanding balance from your vehicle’s current value (via Kelley Blue Book, Edmunds, etc.).

2. Check credit reports: Errors or unresolved issues may affect your rate.

3. Compare lenders: Credit unions, online lenders, and some banks may offer them. Review not just interest rates but also fees and repayment terms.

4. Apply: Provide vehicle details, proof of income, insurance, and ID.

5. Review terms: Ensure you understand the repayment schedule, APR, and fees before accepting.

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Auto equity loans can provide fast access to cash for those with equity in their vehicles, but they carry real risks. While rates may be lower than unsecured options, missed payments could result in repossession. Borrowers should compare multiple lenders, understand all fees, and confirm they can manage both their existing auto loan and the new equity loan.

For some, an auto equity loan may be a workable solution; for others, alternatives like refinancing, unsecured loans, or selling the vehicle may be safer long-term. The key is balancing short-term needs with overall financial stability before making a decision.