DIKSIA.COM - If you need cash fast and have equity in your car, you might be tempted to take out a loan against your car. But what are the pros and cons of this type of financing? And how do you find the best deal for your situation? In this article, we'll explain everything you need to know about auto equity loans, including how they work, where to get them, and what to watch out for.
What is an auto equity loan?
An auto equity loan is a type of secured personal loan that uses the equity you have in your car as collateral. Equity is the difference between the market value of your car and the amount you owe on it. For example, if your car is worth $15,000 and you still owe $10,000 on it, you have $5,000 in equity.
An auto equity loan allows you to borrow a percentage of your equity, usually up to 90%. So, if you have $5,000 in equity, you could borrow up to $4,500. The loan amount will also depend on other factors, such as your income, credit score, and the lender's policies.
Unlike a car title loan, which requires you to have a clear title (no liens or other encumbrances) on your car, an auto equity loan can be taken out even if you're still paying off your original car loan. However, you'll still have to make payments on both loans until they're paid off.
How does an auto equity loan work?
An auto equity loan works similarly to other types of loans. You'll have to fill out an application and provide information about your car, such as its make, model, year, mileage, and condition. You'll also have to provide proof of income, identity, and residence. The lender will then appraise your car and determine its value and your equity. Based on that, they'll offer you a loan amount, interest rate, and repayment term.
The interest rate on an auto equity loan can vary widely depending on the lender, your credit, and the state you live in. Some lenders may charge as low as 10% APR, while others may charge as high as 36% APR or more. The repayment term can also range from a few months to a few years, depending on the loan amount and the lender.