Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research may determine where and how companies appear. Learn more about how we make money.

An auto equity loan is a unique lending option that can give you access to fast financing without the same restrictions as a traditional loan. This type of financing can be a good option if you have a car and need cash but don’t want to take a traditional loan or dip into your savings. In this article, we’ll explain what an auto equity loan is, how they work, and their pros and cons. We’ll also answer frequently asked questions so you can make an informed decision about auto equity loans.

What are auto equity loans?

Auto equity loans are loans that use the equity in your car as collateral. This means if you default on the loan, the lender can legally repossess your vehicle and sell it to cover the cost of the loan. Loan amounts are based on the amount of equity borrowers have in their cars. This is calculated by subtracting any remaining loan balance from the car’s current market value. In most cases, auto equity loans can provide you with up to 100% to 125% of the equity you have in your vehicle.

Are auto equity loans secured loans?

Auto equity loans are secured loans. This means collateral backs the loan. In this case, the collateral is your vehicle.

How do auto equity loans work?

To get an auto equity loan, you must be the owner of the car used to secure the loan. Depending on the lender, you might also need to show other documents, such as your driver’s license and proof of income. The lender will then evaluate your car’s equity and base a loan offer on that.

Your credit score will be important in determining the interest rate and amount you’re eligible to borrow. On average, auto equity loan interest rates range from 6% to 36%. It’s essential to compare different lenders to get the best rate. Once you decide to accept an offer, you will need to sign a loan agreement and agree to the repayment terms.

What is an auto title loan? How is it different?

Car title loans and auto equity loans are both secured loan options, but they differ in several ways. Auto title loans are short-term loans that use the borrower’s car title as collateral. They have higher interest rates, shorter repayment periods and a higher risk of repossession than auto equity loans. According to the Consumer Financial Protection Bureau, one out of five borrowers of auto title loans has their car repossessed.

Who needs an auto equity loan?

Auto equity loans are an option if you have sufficient equity in your car, can afford monthly payments and need quick cash. Auto equity loans are typically used to pay off high-interest debt such as credit cards. If the interest rate on an auto equity loan is lower than other loan options, it may be worth considering. Furthermore, some auto equity loan lenders don’t consider credit history when approving an application, making it an ideal option if you have bad credit.

What are the advantages of auto equity loans?

Despite the possibility of repossession, there are several advantages of auto equity loans.

Good for bad credit

Auto equity loans are a great option if you have a low credit rating, as lenders are more likely to approve the loan based on collateral value of the car rather than solely on creditworthiness.

Fast decisions

Auto equity loans can help you get fast access to cash, as the application and approval process is quick. Most lenders can approve an auto equity loan within minutes, and the funds can be transferred into your account within a few days. This is especially beneficial if you’re in an urgent financial situation and unable to wait on a traditional loan application process.

Larger loan amounts

Car equity loans typically come with larger loan amounts compared to other types of quick cash loans. For instance, car equity loans offer higher loan amounts than traditional payday loans. This makes car equity loans an option if you need to access more significant amounts of money.

Good interest rates

Auto equity loans are attractive because they generally have lower interest rates than other secured loan options. This makes it easier to pay back your loan in a reasonable time frame. Before taking this loan, research different online auto equity loan lenders and select the one with the best auto loan rates.

What are some disadvantages of auto equity loans?

Collateral is required upfront

The most significant disadvantage of an auto equity loan is that it requires you to provide collateral upfront. This can be a significant financial risk if you can’t make monthly payments. So, ensuring that you take the loan with a plan to make regular and timely payments is crucial. If you can’t meet your payment obligations, the repossession of your vehicle could lead to loss of transportation and further financial hardship.

Auto equity loan FAQs

Can you cash out equity on a car?

You can cash out the equity in your car when taking an auto equity loan. In a cash-out refinance, your existing auto loan is replaced with a new one, plus an extra sum you'll receive in cash when the deal closes. Your ability to borrow funds depends on the amount of equity you have in your car. Contact lenders who provide cash-out refinance auto loans to learn more about the terms and information required to complete the loan application. 

How much equity do I have in my car?


To determine the equity in your car, begin by researching the current market value of your vehicle. You can use online car valuation tools or consult a local dealership. It's important to remember that your vehicle's current market value will be lower than what you paid for it as the value depreciates over time.

Once you determine the current market value, calculate the equity of your car by subtracting any remaining loan balance from the market value. If you have more equity than your loan balance, you have positive equity.

Is an auto equity loan worth it?

An auto equity loan can be a feasible option if you need access to quick cash, have bad credit and need an alternative to payday loans. Whether an auto equity loan is worth it depends on your financial situation. Consider the interest rate, repayment terms and your ability to make regular payments on time to determine if it's viable.

Is a personal loan or payday loan a better option?


Personal loans are much more flexible than payday loans, allowing longer repayment terms and larger loan amounts. They also often have lower interest rates than payday loans, making them less expensive in the long run. However, personal loans can be difficult to qualify for and may need a credit check. They also tend to have a longer approval process.

Payday loans are much faster and easier to qualify for because they generally don't require a credit check. However, they usually have higher interest rates than personal loans, making them more expensive in the long run. But, you can access funds quickly, which may be beneficial depending on your situation.

Get expert advice on personal finance matters. Chat now.