An auto equity loan is a type of secured loan where the borrower uses their vehicle as collateral to obtain a loan. The amount of the loan is typically determined by the value of the borrower's car and the amount of equity they have in it. While it’s not an ideal way to get extra funds, it’s a useful tool in an emergency money crunch when other credit options may not be available.
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Can I Get an Auto Equity Loan with Poor Credit?
Even if your credit isn’t good enough for an unsecured loan, lenders are usually willing to loan money if you have sufficient equity in your car to secure the amount you want to borrow. However, you should be prepared to pay a higher interest rate, as you are a higher risk than a borrower with good credit.
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Can I Get an Auto Equity Loan if I Still Owe Money on My Car?
You may be able to get an auto equity loan even if you already have a loan on your car, as long as the amount you owe to the first lender is less than the current value of your car. For instance, if the balance on your original loan is $5,000, and your car is worth $15,000, you have $10,000 worth of equity in your vehicle. You may be able to borrow close to that amount from a second lender, who will then have an additional lien on your car.
What Are the Advantages of an Auto Equity Loan?
If you need some quick cash, an auto equity loan can get money in your bank account within 24 hours. Because the loan is secured by the equity in your car, there’s not as much time needed to check your credit. You can also usually arrange a long repayment schedule to reduce your monthly payments to a manageable level. And if you make your payments on time, you can help improve your credit score.
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What Are the Disadvantages of an Auto Equity Loan?
Car equity loans can end up being very expensive. Lenders can charge up to 60% a year in interest. As well, they may charge additional fees for things such as installing a GPS device so that your car can be located and repossessed if you don’t keep up with your payments.
You may also end up in a situation where you owe more money on your loan than the current market value of your car. If you have an accident and your car is totalled, or if your car is stolen, the insurance company will pay your lien holders first. If there isn’t enough money to pay off your loans, you will have to pay the difference to your creditors, and still need to find and finance a new vehicle.
What Happens if I Miss Payments on My Auto Equity Loan?
If you miss payments on your auto equity loan, the lender can charge you additional fees, or seize the vehicle and sell it to pay off the loan. However, if the selling price doesn’t cover the outstanding portion of your loan, you will be responsible for paying back the difference.
Can I Sell a Car with an Auto Equity Loan?
You can sell a car while still owing money on it, but there’s a few things to keep in mind. If the current value of your car is less than what you owe, you will have to be ready to pay the remaining amount when you sell. It also is harder to sell a car with an auto equity loan to a private buyer, as they may be reluctant to trust you to pay off the lien attached to the car when you transfer ownership.
Your best bet when selling a car that has an auto equity loan is to go directly to a dealership which can take care of the arrangements with the lender for you. They will pay you the difference between what you owe and the price they’ve agreed upon for the vehicle.
Autozen can also help you deal with lien holders when you sell your car through our online auction system. Once your car has sold, we will pay your creditors directly, and give you the rest.
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Is There an Alternative to Getting an Auto Equity Loan?
If you feel that you are in over your head financially, and don’t like the idea of committing to a high-interest loan to solve the problem, consider instead selling your current vehicle and buying a less expensive car to replace it. That way, you will reduce your monthly bills and still have a reliable method of personal transportation.
One way to achieve this is to go directly to a dealership, which can not only buy your current vehicle and pay off your loan but also find you a more reasonably priced vehicle with payments that you can manage. It’s the quickest way to manage the situation.
However, if you are looking for top dollar for your car, consider Autozen! If your vehicle meets our criteria, we’ll add it to our next online auction, where dealers from across Canada will bid on it. Once you’ve accepted the winning offer, we’ll take care of paying off your loan and hand you the difference. Then you start looking for that more reasonable ride, hopefully with a substantial amount of cash to use as a down payment on your next vehicle purchase.