Top Tip Finance

What is Auto Equity Loan?

If you have equity in your vehicle, you might be surprised to know that it can be an unlikely source of money. Auto Equity Loan is relatively new in the market as a financial product. After the pandemic and massive inflation, it has been challenging for many people out here. People in the US have tightened their pockets and even after that it barely leaves them with any savings.

An auto equity loan is pretty much the same thing as a home equity loan. The only difference is the asset being used to secure the loan itself. Obviously, in the case of an auto equity loan, the asset is your vehicle. If your car is worth more than you still owe on it, you can potentially tap into that equity.

Auto equity loans aren’t very popular for a reason. After all, most people are more likely to use a credit card to pay for a large unexpected bill. An auto title loan is essentially a short-term, high-interest payday loan that gets put against the title of your car. Because they are short-term, they are much easier to get than an auto equity loan. However, if you fall behind on your payments, you’ll lose your car pretty quickly.

The good news is that you can calculate the approximate value of your vehicle pretty easily. The bad news is that you’ll probably be disappointed. Cars of every make and model lose their value incredibly fast. You might even find that you don’t have any equity in your car at all. If you opted for a six, seven, or eight-year term, or were stuck with a higher interest rate, you might owe more than your car is ever worth for the majority of the loan.

Like any other kind of loan, an auto equity loan has some potential risk. After all, you’re borrowing money with the expectation that you will pay it back, with interest, promptly. If you fail to make the scheduled payments, there are several consequences.

First of all, you may lose your car. Since you offered the vehicle up as collateral to get the loan, the lender is well within their legal rights to force the sale of the car to be paid back. You may still end up with the leftover cash after the auto equity loan has been zeroed out. However, you likely still owe that money to pay off the rest of your auto loan. Oh, and as a reminder, the car is no longer yours.

The other risks of auto equity loans are hidden fees, extra insurance costs, and credit score hits. Many lenders pad auto equity loans with a bunch of extra fees, since they aren’t a particularly common product. Lenders will probably also require you to have full comprehensive collision insurance on your vehicle to get an auto equity loan.

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