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Auto equity loans explained

Though easier to qualify for, these loans can get expensive.

An auto equity loan is a secured loan that uses your car as collateral, usually with flexible credit requirements. While they typically come with longer terms than other bad-credit options, they can come with high rates and fees. And if you can’t pay off your loan on time, you could lose your car.

What’s an auto equity loan?

An auto equity loan is a type of secured loan geared to bad-credit borrowers that uses your car as collateral. It’s similar to a home equity loan in that you don’t always need to fully own your car to qualify. However, they’re typically more expensive and meant for emergency situations.

How much you can borrow is based on two main factors: the amount of equity you own in your car and its fair market value. So if you have a car with a fair market value of $10,000 and you’ve paid off 80% of your car loan, you can borrow up to $8,000.

Can I qualify for an auto equity loan?

You might not need good credit to qualify for an auto equity loan, but that doesn’t mean lenders don’t have other requirements you need to meet. Generally, you must:

  • Have a car registered in your name. You don’t necessarily need to fully own the car, but it must be in your name if you want to borrow against it.
  • Provide proof of income. Typically lenders ask to see your two most recent pay stubs as proof.
  • Have comprehensive and collision car insurance. Many auto equity loan providers require you to sign up for a comprehensive plan and collision insurance for the length of your loan term.

Some online lenders might not require you to have a bank account to get an auto equity loan, but many do. If you’re looking for a loan without a checking account, reach out to your lender to check on your eligibility before you apply.

Auto equity vs. auto title loans

Auto equity loans and auto title loans are very similar. So similar, in fact, that some lenders use them interchangeably. Both are quick financing solutions that allow you to borrow against the value of your car. You don’t need to have good credit to qualify for either, and your lender can repossess your car if you’re unable to make payments.

But there is one main difference. To get an auto title loan, your car must be under your ownership and have no liens on it. It’s possible to get an auto equity loan with no car title — but some lenders like Finova require full ownership. Auto title loans also typically have terms as short as 30 days.

Auto title loan regulations vary by state — and they’re prohibited altogether in some areas. Auto equity loans may be more widely available.

Auto equity, title and cash-out refinance loans

The term “auto equity loan” isn’t as widely used as terms like home equity or personal loans. Some lenders offer loans they call “cash-out refinance loans,” that work a lot like auto equity loans. Others say they offer auto equity loans when really their product works more like a title loan.

Before you apply, make sure you understand how borrowing from that lender works. Otherwise, you could sign up for a loan.

Advantages and disadvantages of auto equity loans

Not sure if an auto equity loan is right for you? Weigh the benefits and drawbacks to help you decide.


  • It’s easy to qualify. Most auto equity loan providers accept poor-credit borrowers since you’re putting up collateral.
  • You don’t need to fully own your car. You can still get an auto equity loan even if you haven’t fully paid off your car loan.
  • Longer loan terms than other bad-credit options. Longer terms can give you more affordable repayments than you’d have with a short-term loan, making it less of a risk that you’ll default. However, you’ll pay more in interest in the long run.


  • You could lose your car. If you rely on your car to get to work or school on a regular basis, taking out an auto equity loan might not be worth the risk.
  • It can be expensive. With APRs topping 500% with some online lenders, auto equity loans aren’t the cheapest form of financing out there.
  • Extra fees. On top of the fees involved in taking out a lien on your car, some online auto equity loans come with renewal fees if you can’t afford to pay off your loan when it’s due.

Should I consider refinancing?

If you already have a title loan that you’re struggling to pay off, you might want to refinance it instead. Refinancing involves taking out a new loan to pay off your current loan, ideally with more favorable rates and terms.

But even if you’re unable to qualify for more competitive rates, refinancing could help lengthen your loan to make repayments more affordable.

How title loan buyouts works

Alternatives to auto equity loans

Getting an auto equity loan might not be right for you.

Title loans

If you need money fast and fully own your car, you might want to consider an auto title loan. With a title loan, you’ll have more choices to compare — though it’ll still be risky and expensive.

Cash-out refinancing

If you’ve got strong credit but are still paying off your loan, consider cash-out refinancing. This option allows you to refinance your car loan and borrow a little bit more than your payoff amount to cover personal expenses. It typically takes longer to qualify than an auto equity loan but can be less expensive.

Local resources

If you have a low income and need funds to cover basic expenses, you could qualify for benefits offered by your state, county or city. These can reduce your monthly costs and help you save up for the expense you wanted to fund with your auto equity loan.

Bottom line

When you’re still paying off a car loan and have bad credit, an auto equity loan could be a quick way to get cash for an emergency expense. But it’s not without risk. You could lose your car and damage your credit if you’re unable to pay it off.

Before you sign up, learn about your other short-term loan options first.

Image: shutterstock

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