The last few years have been a wild ride for almost everyone, with almost every aspect of our lives changing in ways big and small. This kind of mess is hard enough when you’re flush with cash, but when money’s running low, inflation risesand an emergency suddenly presents you with an enormous bill, Things can get dark.
If you don’t have a solid emergency fund to get you through an emergency, the most common solution is to take out a loan Money. Using credit cards to deal with a sudden debt is an easy fix, but these rates are common will make you regret the decision – and any type of payday loan will have the same outcome. What you need is a secured loan based on collateral, like a home equity loan — but that doesn’t help if you’re renting. And this is where your car comes in: Just like a home loan, you can potentially get an auto equity loan, even if you still owe money for the vehicle.
This is how auto equity loans work.
What is the difference between a car title loan and a car equity loan?
The first thing you need to understand is that there are two ways to borrow your car: an auto equity loan and an auto title loan. You should avoid the latter like the plague as it is basically a matter of high interest payday loan this is done to place a lien on the title of your car. They are usually very short term and easier to get which is why people fall for them, but they are a bad deal and if you default on the payments, You could lose your car.
aUto equity loans, on the other hand, are usually offered by a traditional lender like your bank. It is a secured loan where your equity in the car serves as collateral, so interest rates are reasonable and payments are clear and firm.
How to calculate yours equity in your car
The first step to getting an auto equity loan is to figure out what you are doing could can borrow. This is a pretty simple process:
- Determine how much you still owe on the car. Obviously, if you paid off the loan (or bought it for cash in the first place), that number is zero.
- Find out the current value of the car by checking with Kelley Blue Book or autotrader or another resource. (Prepare to be disappointed – cars go down in value quickly.)
- Subtract the first number from the second. That’s both your equity in the car and the potential Value of your auto equity loan. That doesn’t mean that’s what a bank or other lender is actually offering you – they’ll have their own weird math to figure out how much risk they’re willing to take.
For example, if you have a 2018 Ford Taurus in excellent condition, Its current estimated value is around $18,500. If you owe $5,000 on the loan, you could possibly Borrow $13,500 from your equity. While some lenders will let you lend you 100 percent of your equity on the car, many won’t be willing to lend you that much, but it’s a good place to start.
The process of getting an auto equity loan is similar to any other loan. You identify a lender that offers auto equity loans (not all lenders do this – most big banks don’t, so you’ll probably need to explore smaller, local banks or online banks marine finance), fill out the application, and go through any other steps the lender requires. The process tends to be pretty quick as long as everything is in order. With online lenders You can often have a permit – and the money – within a day, but looking for the best prices could be worth a little delay if you have the time.
While an auto equity loan is better than a payday loan and can be a great solution to a short-term liquidity crunch, there are a few downsides to consider:
- Risk. You borrow money by using your car to secure the loan, which means you could lose the car if you don’t pay back the loan. This could be especially annoying if you’ve paid off your car loan or are about to.
- hidden costs. Some lenders charge additional fees because an auto equity loan is not common and is considered higher risk than other loans. So be sure to read the fine print. And since being poor is expensive, lenders might require you to take out comprehensive auto insurance to protect their assets, leaving you with higher monthly payments on everything else.
The bottom line? If you need cash in the short term and have a lot of equity in your car, an auto equity loan is a relatively stable way to bridge the gap. However, it may make sense to explore other options first, and you should always keep the risks in mind.