Approximately 73 million Americans state that they’re financially healthy. That’s just 29 percent of the total US population. The vast majority of the remaining 71 percent encounter financial difficulties often.
A sudden financial emergency can catch you off guard. For about 40 percent of Americans, confronting such a situation would mean going into debt or selling something.
Thankfully, there are many loan options on offer for Americans who are short on cash. Among these loan types are auto equity loans.
If you’ve never taken an auto equity loan, you may not know how they work and why these loans are so popular among car owners in the country. If you’re looking to understand auto equity loans better, you’ve come to the right place. In today’s post, we tell you all you need to know about auto equity loans and why you should consider them when in need of quick cash.
What Is an Auto Equity Loan?
An auto equity loan refers to a type of secured loan where a car owner can borrow money against the value of their car. Usually, the lender allows you to borrow money whether you own the car outright or have some equity in it.
The loan amount is based on several factors, including the amount of equity you have in your vehicle, your car’s fair market value, your income, and your credit. For many top lenders, loan amounts range from $1000 to $5000.
Some lenders use the terms auto equity loans and car title loans interchangeably, but the two are different. Typically, you’ll need to have a free and clear title to get a car title loan. That means there must be no liens or other encumbrances on your car’s title.
Just like other secured loans, auto equity loans carry a certain amount of risk. You need to keep up with your payments to avoid the risk of the lender repossessing your car. That’s why you need to assess your ability to repay the loan before getting an auto equity loan.
How Auto Equity Loans Work
You can apply for an auto equity loan by completing an application form where you provide certain details about your car. These details include your vehicle’s value and the amount of equity you have in it.
Once the lender approves your application, they’ll deposit money into your bank account, sometimes within the same business day. You’ll then need to make payments according to the schedule you and your lender agreed upon.
As we pointed out before, it’s crucial to make payments on time. Missed payments can lead to repossession of your car by the lender. The lender also has the right to report missed payments to credit bureaus, which would hurt your credit score.
Benefits of Auto Equity Loans
While auto equity loans come with a certain amount of risk, they also have numerous benefits that make them so popular. Here are some of those benefits.
Friendly Interest Rates
Generally, secured loans have a lower interest rate than unsecured loans. That’s because when you take an auto equity loan, you’re putting your car on the line. Since the lender has a physical asset they can repossess if you can’t make payments, they’ll be more willing to give you a lower interest rate.
Things are different with unsecured loans, such as payday loans. These loans are riskier for lenders, so they charge a significantly higher interest rate to protect themselves.
You Get Different Repayment Options
Typically, auto equity loans have short terms, ranging from 30 days to a few months. However, your lender may offer you the option of extending the loan term. Of course, that means you’ll probably pay more fees, but it gives you a bit of breathing space.
They’re Easy to Qualify for
One of the common challenges of applying for a loan is that denials are quite common. Unlike many other types of loans, auto equity loans are quite easy to qualify for. As long as you own a car that has a positive equity position, you’ll almost certainly qualify for this type of loan.
You Get Quick Access to Cash
Among the top benefits of auto loans is that money gets disbursed to your account quickly, which is essential when facing a financial emergency. Most reputable lenders provide the funds you seek within hours of applying for the loan.
This time is a lot less than the period some other types of loans take. A home equity line of credit (HELOC), for instance, can take as much as four weeks to be disbursed.
Other Options for Borrowing Against Your Car
Securing an auto equity loan isn’t the only way you can borrow money against your vehicle. Check out these two other options.
Auto Loan Refinancing
Most car owners who refinance their auto loans do so because interests have dropped, or they have challenges keeping up with loan repayments. You may also be able to access a cash-out refinance loan, which allows you to take a new auto loan for a higher amount than the balance on your original loan. With this new loan, you get to keep the extra cash and use it for whatever you’d like.
Auto Title Loans
An auto title loan involves the lender keeping the title of your car as collateral. The lender then provides you with cash.
One of the benefits of title loans is that the lender isn’t interested in your credit. Hence, title loans are accessible to car owners with bad credit.
Perhaps the major drawback of these types of loans is their high interest rates. These loans are also usually due within a short time period. Most lenders give you 30 days to pay the loan, although there’s an option to extend your loan, which means incurring additional fees.
Auto Equity Loans Are a Great Solution for Financial Emergencies
When facing a crisis that needs quick cash to resolve, an auto loan may be the best answer for you. Besides the benefit of allowing you to access money quickly, auto equity loans are significantly easy to qualify for and come with friendly interest rates.
Are you interested in the best deals on auto equity loans? Please, contact us today.