An auto equity loan lets you borrow money using your car’s equity as collateral. If you’ve paid off most (or all) of your vehicle, you may be eligible for fast cash without selling it — even if your credit isn’t perfect.
This guide explains how auto equity loans work, their pros and cons, and when they make sense.
What Is an Auto Equity Loan?
An auto equity loan is a secured loan that lets you borrow against the value of your car. Similar to a home equity loan, you tap into the equity — the difference between your car’s market value and what you still owe on it.
- If you own the car outright, your full car value is equity
- If you still have a loan, equity = car value − remaining loan balance
You receive a lump-sum cash payment and repay it over time, typically in fixed monthly installments.
How Does It Work?
Here’s how the process generally goes:
- You apply with a lender or title loan company
- They appraise your car’s value (based on make, model, mileage, condition)
- You’re offered a loan amount, usually 70–90% of the equity
- If approved, you get the money quickly — sometimes the same day
- You keep driving your car, but the lender holds the title as collateral
- If you don’t repay, they can legally repossess the vehicle
Pros of Auto Equity Loans
✅ Fast access to cash — typically within 24–48 hours
✅ No need to sell your car
✅ Can help people with bad credit
✅ Less paperwork than personal loans or refinancing
✅ Fixed interest rates (in many cases)
Cons to Watch Out For
⚠️ High interest rates (especially from non-bank lenders)
⚠️ Risk of losing your car if you default
⚠️ Short repayment terms (often 12–36 months)
⚠️ Fees and hidden charges
⚠️ May still require proof of income or insurance
When Does an Auto Equity Loan Make Sense?
An auto equity loan might be a good option if:
- You own your car or have significant equity
- You need cash quickly
- You can’t qualify for unsecured loans
- You’re confident you can repay on time
But if you’re already struggling financially, using your car as collateral may increase your risk. In those cases, consider alternatives like personal loans, credit union options, or even negotiating payment plans.
Related: Auto Loan for Bad Credit
If you’re looking for other ways to access financing without strong credit, our main guide on auto loans for bad credit walks you through lender types, approval tips, and what to avoid.
Final Thoughts
An auto equity loan can offer fast cash and flexible access to financing — but it comes with real risks. Before handing over your car title, be sure you understand the interest rate, repayment terms, and consequences of default. Used wisely, it can be a useful financial tool.
