The Difference Between Auto Title Loans and Auto Equity Loan
If you’re investigating the best way to secure an emergency loan, you should know there’s a difference between auto title loans and auto equity loans. The good news is that many of the same lenders offer both types of loans. You’ll want to understand the differences so you can secure the best terms possible and know which one to pursue if you need a quick loan.
Whether you own the car
The main difference is Title Loans are for vehicles that you own without any remaining payment, while Equity Loans are for cars that still have payments to go. Auto title loans require a clear title to qualify, so you can’t get an auto title loan while still making payments on the car.
Auto equity loans are secured loans based on the value you have paid against the original purchase loan, so you get the loan while you’re still paying off the original car loan. In both situations, you get to keep driving your car during the period of the loan.
Loan process in one day
Auto equity and title loans are expedient when you need cash in an emergency. The same lenders offer both types, and the process for applying and approval is similar.
The first step is to gather any paperwork you have on your car, like the title or the loan information. Next, you apply online for the loan and present the documentation and vehicle in person for a final valuation. After that, lenders issue a decision in minutes. In many cases, you’ll have cash in hand the same day.
What you’ll need to qualify
Equity loans require a car that’s in driving condition, along with loan documentation, a valid ID, proof of residence, and proof of insurance.
Title loans require a vehicle registered in your name, documentation that there are no outstanding loans on the car, identification, proof of employment and income, and comprehensive and collision auto insurance coverage.
Many lenders don’t check your credit score because they can take and sell your car if you default. But, it’s common for lenders to look at your payment history to see if you have historically made consecutive payments on time.
Loan amount based on the value of the car
Collateral loans are based on the value of your vehicle after deducting any outstanding loans on it, which is called equity. The lender determines the value of your car based on the fair market value. Depending on the make, model, age, and condition of your car, they will assign a value to it.
The lender subtracts how much you owe on the car from the market value to determine the equity you hold. If you own the car outright, then you could be eligible for a loan that matches the value of the vehicle.
If you still owe on the car, the amount available for the loan is based on your equity. For example, if the fair market value of your automobile is $15,500, but you owe $10,000 on the initial loan, you have $5,500 in equity.
Terms for paying it back
Depending on the lender and the amount you borrow, the term could last from one year to three years. There is no prepayment penalty in most states, so you can pay the loan off sooner
and avoid paying extra interest. If you can’t pay the loan back in full on time, you can extend the loan terms if you’ve paid off the principle, but that can quickly turn expensive.
You’re not alone
A recent study showed that 40% of Americans can’t cover a $400 unexpected expense. If you find yourself in a bind, you can use the value of your car for a secured loan. Pursue a title loan if you own your car outright, or an equity loan if you’re still making payments. The loan amount and terms will depend on the value of the automobile, but in most cases, you can complete the loan process within a day.