What is an Auto Equity Loan?
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What is an Auto Equity Loan?
The article was written by Amrita Jayakumar Writer The Washington Post Amrita Jayakumar is a former special assignments writer for NerdWallet. She also published a syndicated article on millennials and money, and focused on personal loans and consumer credit and debt. Previously, she was an editor at The Washington Post. Her work has appeared within The Miami Herald and USAToday. Amrita holds a master’s degree in journalism from The University ofMissouri.
Feb 8 February 8, 2017
Editor: Kim Lowe Lead Assigning Editor Consumer lending Kim Lowe leads the personal loans editorial team. The editor joined NerdWallet following 15 years of of managing content for MSN.com that covered food, health and travel. Kim began her career as a writer for publications covering mortgages, supermarket and restaurant industries. Kim earned an undergraduate degree in journalism at the University of Iowa and a Master of Business Administration from the University of Washington.
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A car equity loan is like an equity home loan however, you make use of the value of your vehicle instead of your home as the loan and then pay it back with interest.
Like all , auto equity loans have a risk. If you don’t make your loan payments the lender may take over your car. If you use your car to get to work or school, the hardship of repossession is obvious. In certain instances lenders can affect your credit score in the event that it reports your late payments to the credit bureaus.
With these risks to your financial stability in mind, we recommend auto equity loans solely for emergency situations — and even in those instances, there are better alternatives .
In addition to auto equity loans Other ways to borrow against your car include with a cash-out option and , both of which should be handled with care.
Where to find auto equity loans
Most community banks and some credit unions provide car equity loans. The costs for such loans are contingent on your credit score, your credit history and the value of your car.
The four largest banks in the country by deposits -the banks – Bank of America, Chase, Citibank and Wells Fargo do not provide auto equity loans however, a few smaller banks do.
At federal credit unions, the maximum annual percentage rate that could be charged for such loans can be 18%, however, there could be additional charges for application.
You could qualify to receive an auto equity loan from a different source than a community bank or credit union. Such lenders, many of which are online, offer secured loans with a maximum APR of 36 percent, and two-to five-year repayment terms. Consumer advocates and regulators say three percent is considered to be the highest amount that is affordable for a loan.
Two major lenders offering car equity loans are and , which offer secured loans below 36% to customers with bad credit scores, typically below 630.
Another lender extends auto equity loans to borrowers with low credit score or lower, however it charges fees in addition to its APR, which makes the loan more expensive.
Another way to get credit against your vehicle
Auto loan refinancing
is logical if interest rates drop, or if you’re unable to keep up with loan payment. Certain lenders also offer loans which let you take a new auto loan for a larger amount than the amount left on the original loan. The amount you can borrow varies from lender to lender and typically is based on the amount of equity you own in your vehicle. The new loan replaces the original and you keep the extra cash.
Auto title loans
Auto title lenders offer instant cash in exchange for the title of your vehicle as collateral, and without checking your credit. This means that you can qualify for a loan even having bad credit however, it also means you may be more at risk of being in default.
Like payday loans, car title loans have very high interest rates that can reach 300% — and are usually due in an extremely short period of time usually 30 days. A significant proportion of title loan borrowers end up having extended their loans as per a report from the Consumer Financial Protection Bureau, paying additional charges and increasing the chance of repossession.
Make sure you have your car insurance
No matter which type of car equity loan you select The majority of lenders require proof of coverage. If your car is paid off, you might have opted to only carry liability insurance — which is mandatory in many states as well as dropped collision and comprehensive insurance.
If this is the case for you, lenders for auto equity may offer you the option to purchase a kind of insurance, referred to as an «debt cancellation additional» or simply » ,» that covers the cost of your loan payments in the event that your vehicle is damaged, you lose your job, or suffer an injury. In contrast to collision and comprehensive coverage, credit insurance will not cover the costs of repairing your car.
The cost of credit insurance can be high, and it is not as part of the price of your loan. It’s usually cheaper to purchase comprehensive and collision insurance instead.
Find .
Take a look at other items worth your money; you don’t risk your car or your credit.
About the writer: Amrita Jayakumar is a former writer for NerdWallet. She was previously employed by The Washington Post and the Miami Herald.
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