Car Equity Loans - What You Need to Know

Car equity loans, also referred to as auto equity loans, are seen in many of the societies as suitable means of accessing short term money requirements. Some of these loans enable you to obtain an amount of money by giving a car as security and it is usually easier to obtain than other types of loans. Yet like any financial product there is important information that one should be aware of before agreeing to the car equity loan. This article will consider all the necessary and important information you may need to know about car equity loans, the way that work, and pros and cons associated with them.

Table of Contents

How Car Equity Loans Work

Car equity loans are valuable as they make use of the borrower’s car as security. In other words, you are just obtaining a cash loan that has been provided with reference to the value of your car. Equity is how much money can be got if the car is sold with any balance on any loan such as car loan or lease left to be paid. For instance, if the car is worth $20000 and you owe $5000 on it then the equity should be $15000.

Generally, the approval process for car equity loans is way faster than that of normal loans because the car is security. This means that the lender shall be able to recover the cash in the event you go bankrupt and you cannot in any way pay off the loan as agreed. Example, car equity loans may even be approved and funded within the shortest time possible, say within 3-5 business days in most cases.

Eligibility Criteria

To access the car equity loan, it is important to qualify in certain prerequisites of the given loan. Generally, these criteria include:

Proof of ownership: You must be free and clear of the vehicle; meaning you or the current loan holder have to completely own the car. If you still have your car loan in progress, there is available a refinancing car loan option for you.
Vehicle appraisal: The lender will assess your car to estimate the amount that he is willing to lend. There will be cases where some lenders have their valuer, while others hire service providers to carry out the valuation.
Proof of income: Usually, banks require furnished proof of income to assure the borrower’s ability to pay back the money. This may be pay slips or bank statements or certified income tax returns.
Driver’s license and insurance: Of course, you will need your driver’s license and proof of insurance for the car being pledged as security.

Pros of Car Equity Loans

1. Low down-payment

Car equity loans may also be given in a shorter time than traditional loan services. This is because in the event your vehicle was repossessed, it is the loan security, indicating that the lender can take away your car if you default on the payments. Due to the simplified approval process many customers can obtain funds in a few days.

2. No Credit Check Required

One of the benefits of car equity loans is that among all sorts of loans, usually credit check is not mandatory. This means that if you have a bad or no credit score at all you will still be able to access the loan. Most lenders do not mind offering credit anticipating the title of your car instead of your credit score.

3. Flexibility in Loan Terms

An auto equity loan is flexible when it comes to its associated loan terms for borrowers. The loans are usually structured to enable borrowers to set the amount they wish to borrow, which ranges from a minimum of 10% of the vehicle’s value to a maximum of 50% equity. Besides, there is also flexibility when borrowers select the payment plan of the loan that they wish to agree with.

4. Emergency Cash

Car equity loans can be very beneficial as they can offer a borrower the necessary cash in an emergency. If you have some urgent expenses, for instance, bills to pay or urgent operations like automobile or house repair – car equity loan is the quickest way to cope with all the troubles.

Cons of Car Equity Loans

1. Risk of Repossession

Car equity loans have one major drawback in that the car used in the financing can be repossessed easily by the financier. This is possible because for your auto loan, the car owner has a standing to repossess the car in case of default. It means that when you can no longer afford to make your installments you mentioned for instance the car, then it will be repossessed by you.

2. Higher Interest Rates

The disappointing factor regarding car equity loans is that they called for interests greater than normal loans. It is because they are presumed to be riskier to the lender than the other types of securities because of the borrower’s possibility of defaulting on the loan. The highest interest rates also imply that a very high amount of money is charged for borrowing through a car equity loan than is charged when borrowing through any other method.

3. Potential for Fees

Car equity also contains a few costs, for example, loan origination costs, auto appraisal costs; and other costs including document preparation fees. These fees tend to be heterogeneous and when combined can greatly inflate the eventual cost of your loan.

4. Reduced Equity

There are many conditions of receiving a title loan but the main one – you decrease the amount of equity in your car. If you fail to get your loan you will be upside down on your car loan which means you owe the car company more than the value of the car you borrowed. That makes it a herculean task to sell the car, or even to trade it in for another new car.

Applying for Car Equity Loan

The application process for a car equity loan can vary depending on the lender, but there are some general steps you can follow:

Determine the value of your car: To do that you will have to get an appraisal of your vehicle to determine how much equity is in it.
Research lenders: Take time and do some research to find which of the lenders out there charges the lowest fees and as well as the most competitive interest rates that would suit your situation.
Complete the application: The application is to be completed with the correct information that being the information of the car to be serviced and personal details.
Provide documentation: Evidence of income, evidence of residency and other forms of identification might be required from you.
Wait for approval: Once you apply for a personal loan there is approval required once you have submitted your application. On occasion, you will make your decision within several business days only.
Get the funds: Once they are approved car owners are provided with an amount from the car equity loan. They will be paid directly to you, preferably by check or through electronic transfer.

Alternative Options

Before opting for a car equity loan, consider alternative financing options, such as:

Personal loans: If you wish to lend money then you don’t need to have any property to get pledged this is why unsecured personal loans are even more attractive than others.
Credit card cash advances: This depends on whether your credit card is affiliated to a raw line of credit you’re able to borrow cash in the event of an emergency.
Home equity loans: If you are a homeowner you may be able to take a home equity loan – where you are given money based on the value of your home.

Conclusion

Car equity loans may prove useful to a borrower with poor credit score who needs access to cash in the shortest time possible. But it is necessary to realize such types of credits and possible consequences like, for example, repossession or rather high fees. This implies that all in all research on the lenders, about the loan terms, and analysis of other financing options, will assist a person to select the correct choice and find the best auto equity loan available.