Did you know that 56% of Americans won’t be able to cover a $1,000 emergency expense?
This would often lead to people having to sell or even put up your car as collateral. There are two major credit facilities available for this, an auto equity loan and a title loan. While both are popular methods of getting access to emergency funds, they do have some distinct differences you should know about.
Despite these popular options allowing you to put up your vehicle as collateral, it’s important to understand how they work. This way you know all your options and can make the right financial decision.
Are you thinking about putting your vehicle up as collateral but not sure what kind of loan to get? You’re in the right place. Here’s everything you need to know about auto equity loans and title loans.
An auto equity loan is a type of personal loan. This kind of personal loan is leveraged by the equity in your car. This makes it a great way to borrow up to 100% of the equity in your car. This means that the more equity you have in your car, the more you can borrow.
Auto equity loans work by effectively leveraging the equity you have built up in your vehicle. As you pay your car off, you build value in the car. This is what the auto equity loan effectively takes out for you whenever you may need it.
An auto equity loan is one of the best ways to get access to emergency funds. Here are some of the benefits of borrowing from the equity in your car.
Auto equity loans are designed to let you put up your asset as collateral. This means that you will not need to go through much of the red tape that traditional lenders will ask of you. This means that you won’t need to go through any credit checks either.
Auto equity loans will let you borrow up to 100% of the equity you have in your vehicle. This means that the more equity you have in the car, the more you can borrow. As you pay back your loan, the equity in your car will slowly return.
When it comes to taking loans, the interest rate is the most important metric to consider. While most personal loans can end up costing a fortune in interest, auto equity loans are significantly cheaper. These loans can range from around 25% to 30% APR.
Auto equity loans are the perfect solution for people wishing to leverage the equity in their cars for emergency cash. This is a great way to extract the equity within your vehicle when you need it the most. These kinds of loans don’t look into your credit history, making them perfect for people with bad or maxed-out credit facilities.
A title loan is a personal loan that is secured by a vehicle. This lets borrowers use their car as collateral whenever they may need emergency cash. Since the car is listed as collateral, this means that the lender can repossess the car if you default on the loan.
These loans can range but are generally between $1,000 and 50% of the current value of your vehicle. Interest rates for these loans can range as well. As a personal loan, you can expect to pay a much higher interest rate than you normally would. This means that you can end up paying 20% to 50% APR.
A title loan is a collateral-based personal loan. This means that you will need to be approved by the lender based on the collateral that you are willing to put up for the loan. This differs from traditional credit as you won’t need to prove affordability with a credit score.
This makes title loans a great way to get emergency cash if you don’t have enough available credit. These kinds of loans come with hefty charges, making them some of the most expensive credit facilities you can get.
Another great aspect of a title loan is that they are quick and easily accessible. This is one of the most important aspects to consider as most of these loans are taken for emergencies.
There are quite a few benefits of leveraging your car with a title loan. Here are some of the most notable benefits of a title loan.
Whether you are between jobs or have already maxed out your credit card, title loans won’t look into your credit history to approve your loan. This can allow you to secure a personal loan even if you don’t have the best credit score.
Credit checks traditionally deny thousands of people even if they have the assets to put up as collateral. While major banks don’t mind giving out loans against property, not all will consider your car an asset in the same class.
Title loans are incredibly easy to apply for as well. You can effortlessly apply for a title loan online, uploading the necessary documents from your phone or computer. These loans typically get approved within 24 to 72 hours, much faster than any of the traditional banks.
Traditional banks are usually the first stop for people in need of credit. However, there is often tons of red tape and documents to fill in before you can get a credit card or personal loan. Title loans make the entire process more accessible, allowing people to apply completely online.
Despite being a great way to get access to cash, there are significant cons to consider as well. Here are some of the most noteworthy downsides of getting a title loan.
Title loans can be very expensive. While most credit cards will charge between 1% and 15% per annum, title loans will often charge around 25% of the loan amount per month. This can easily rack up a cost of over 300% in interest.
Another major downside of title loans is that they typically come with very short loan terms. Most title loans come with a one-month term. This means that you will need to pay back the entire loan in full at the end of the month.
Putting up your car for collateral means that there is a significant risk that you may lose your car if you fail to meet your payments. Unlike other credit facilities that will simply charge you penalty fees and interest, title loan lenders will repossess your car.
Title loans are perfect for individuals that are in need of emergency cash and don’t have equity in their car that they can leverage. This is also perfect for people with bad or maxed-out credit as traditional banks and lenders may not give them the time of day.
Auto equity loans are very different from title loans. While both these car loans require you to put up your vehicle as collateral, they work in different ways. The main differences between auto equity loans and title loans are that the auto equity loan allows you to keep your car as you pay back the loan.
Title loans can often get you more money, but can end up costing you more money as you will have to go without your car until you can pay off the loan. Auto equity loans will require your car to have equity built up first, meaning that your car will need to be significantly paid off for the loan to be worth taking.
Both of these loans can still be useful. If you don’t have equity built up in your vehicle, you can go the title loan route. However, if your car is significantly paid off and has equity in it, the auto equity loan is the way to go.
If you’re short on cash and need a loan, it’s important to do your research to find the perfect solution for you. Here are a few things to help you choose the right personal loan for you.
Different credit facilities will offer you drastically different loan amounts. The amount of credit you can get from a credit card will differ drastically from the amount of money a mortgage will give you. This is why you should spend some time budgeting and deciding how much credit you actually need.
One of the most important aspects to consider is the interest rate. This works together with the loan term to determine exactly how much you are going to have to repay. This also helps you figure out and budget an affordable payment plan.
You can use these calculations to work backward so that you know how much credit you can comfortably afford. This is a great way to make sure that you can afford the monthly payment and won’t default on your loan.
If you don’t get approved at first for credit, ask about any collateral offerings that may be available. The most popular options are auto equity loans and other car loans that let you put up your car as collateral for the loan.
While this is a last resort, auto equity loans are a great way to get access to emergency cash. Due to you having to put up collateral, these loans are more likely to get approved.
If you have the option to choose between an auto equity loan and a title loan, there are a few reasons why auto equity loans are better. Here are a few reasons why you should opt to leverage the equity in your car.
Title loans can end up costing you 25% of the loan value every month. This can quickly add up, making it one of the most expensive personal loans you can take. Auto equity loans are much more affordable at around 30% per year.
Auto equity loans can be leveraged up to 100% of the equity you have in your car. This means that there is no limit like there is with a title loan.
While title loans are designed to only last a few weeks to a month, auto equity loans can come with much longer terms. These loans can leverage the equity in your car for multiple months all the way to a year. This makes the entire loan more affordable as you will have more installments available to pay it all back.
An auto equity loan is a great short-term solution if you need cash. These loans are based on the current value of your car, making it a loan secured by an underlying asset. This is a great way to put up your car as collateral without having to give up your car in the process.
If you have any more questions or want to learn about other useful credit products, feel free to browse our website. If you’re looking for an easy way to secure an auto equity loan, contact us today.