A personal loan allows you to borrow money without any security — but with an auto equity loan, you can borrow money against the value of your car. And while having a secured loan can mean a lower interest rate, you will need to consider the advantages and risks that come with an auto equity loan before taking one out.
What an auto equity loan is
An auto equity loan is a variation of a personal loan. You can use the funds for any purpose, provided there is equity in your vehicle.
Auto equity loans allow you to borrow money against the value of your car. If your car is worth $25,000 and you have a loan balance of $10,000, you have $15,000 worth of equity that you can potentially borrow against. With an auto equity loan, you can borrow up to 100 percent of the equity in your car, up to a specified limit.
Because the loan is secured by your vehicle, it’s likely you will be able to get a lower rate than a normal personal loan. However, because your car will be used as collateral, it is at risk of repossession if you don’t make your payments on time.
If you’re looking to get an auto equity loan, check with your bank or credit union first. They may offer the service, or they may have a partner with whom they can connect you.
Benefits of an auto equity loan
An auto equity loan can come with a number of benefits.
- Faster approvals. For those with bad credit, an auto equity loan can mean quick approval. Because you can use the equity in your car as collateral, the bank can ensure that it’s getting its money back.
- Larger loans. As with any equity loan, the amount you can borrow is partially determined by how much equity you have in your car. Someone with a $10,000 car and $5,000 in equity could get up to a $5,000 loan, for example, while someone with a less valuable car might not be able to get a loan at all.
- Low interest rates. The interest rate you receive on an auto equity loan is directly connected to your credit score and the value of your car. That means if your car is worth a lot, you may be able to get a good rate, even with less-than-perfect credit.
Drawbacks to an auto equity loan
There are also some drawbacks to taking out an auto equity loan.
- Vehicle is collateral. An auto equity loan uses your car as collateral. This …….
Source: https://www.bankrate.com/loans/auto-loans/auto-equity-loan/
