Do you know what an auto equity loan is? Are you curious as to whether or not you qualify for one? Or if you even need one in the first place? This can be a confusing topic, especially if you’ve never been introduced to the subject before. However, the good thing about being confused is that it usually means you’re about to learn something.

In this post, we will go over what an auto equity loan is, and if it’s right for you and your particular circumstance.

What is an Auto Equity Loan?

If we were to break it down in layman’s terms, an auto equity loan is essentially a security deposit taken from the equity (aka the value) that you’ve paid on your car — it’s a form of collateral. Similar to a home equity loan — except obviously — the vehicle becomes the theme of the subject matter rather than the house.

This type of loan is most beneficial to those with bad credit who are in need of a quick cash advance. As it pertains to auto equity loans, owning your vehicle outright is not a prerequisite for qualifying. What this entails is that if several other moneylenders are making use of your vehicle as collateral until you clear your debts, you still have the ability to qualify for additional financing.

And lastly, the equity is assessed by the market value of the vehicle. Typically, the most a lender will dispense is equal to the quantity of the equity you’ve paid into the car.

Auto equity loans are usually extended to those who are in poor financial shape. With this being the case, the loans are more costly due to liability reasons.

The Requirements of Auto Equity Loans

While useful when you’re in a financial pinch, there are certain stipulations that must be adhered to in order to apply for an auto equity loan. Here are a few things to take care of to help smooth out the application process:

  • Proof of Income – The lender is going to ask you to provide proof of income, a couple of your most recent pay stubs will be sufficient, they just want to be certain you will repay your debts
  • Car Insurance – Most lenders have a compulsory policy mandating that you have comprehensive and collision car insurance
  • A Registered Vehicle – If you’re looking to borrow money on your car, then it must (obviously) be registered in your name,

Pros and Cons

Regardless of what you do in life, you should always compare the advantages to your downside risk. And making financial decisions is no different, actually, when it comes to your finances, it’s wise to be even more cautious.

The advantages and disadvantages of an auto equity loan are:


  • Loan Terms Are Generally Longer – More often than not, auto equity loan terms are usually longer than other loans, this is a pro because longer terms typically equate to more affordable payments
  • Most People Qualify – You don’t have to worry about having a stellar credit score, generally speaking, most can qualify for this type of loan
  • You Don’t Need to Own Your Vehicle – Even if your car is not fully paid for yet, you can still get an auto equity loan


More Expensive – With higher interest rates, auto equity loans are not exactly the most cost-effective option for financing, but that doesn’t mean it’s a bad alternative, on contrary, it’s actually a smart choice when compared to other options like payday loans

Could Potentially Lose Your Car – If you fail to honour your commitment to pay the loan, you will lose your vehicle to the lender

Credit Score for an Auto Equity Loan

One of the hallmarks of the auto equity loan process is there is no need for a good credit score. Moneylenders don’t ask or require it. This is due to the fact that your car is used as collateral for the loan. Defaulting will simply cause the lender to repossess your vehicle. With this kind of setup protecting the lender, there is not much concern on their part for a good credit score.

Auto Equity Loans and Vehicle Title Loans: What’s the Difference?

There are differences as well as similarities between these two types of loans, even though they are often used interchangeably. Both options offer quick financing to individuals via the equity in their vehicles as collateral and do not require a polished credit score.

The primary difference between the two loan types is that with vehicle title loans, you must own your car outright when applying. Furthermore, vehicle loans will typically have shorter pay periods than auto equity loans.

Should You Take Out an Auto Equity Loan?

Truth be told, there is no definitive, one size fits all answer for this question. Everyone’s situation is going to be drastically different. This means it’s going to be based on your financial standing as well as your monetary goals and objectives in life.

Auto equity loans are best suited for those who are in financial straits and are in need of assistance. If that sounds like you, then maybe it’s worth considering. But be sure to do your homework before applying, consult with a financial advisor, and weigh out all the potentialities first.