by Susan Paige
A recent survey revealed that 40% of Americans don’t have the funds to cover a $400 emergency expense.
If you’re one of the many Americans living paycheck to paycheck, you understand just how much a minor emergency can affect your life. When they do happen, take a deep breath and know that there are lending options available to help you through this tough time.
Keep reading to learn all about how auto equity loans work in this guide.
What Are Auto Equity Loans?
An auto equity loan is a funding tool that can help you out of a tough situation.
For these loans, a lender allows you to obtain money equal to or less than the amount of equity you have in a vehicle. If you have a high-value vehicle with a history of payments, you have the opportunity to receive a decent amount of funding. You are using the equity in your car or any other vehicle you own as collateral for this loan.
An auto equity loan is more accessible than a title loan. For a title loan, you must completely own the vehicle and have its title in hand. But a car equity loan allows you to borrow against the portion of the car that you own without the need of it’s title or a very good credit score.
The Benefits of an Auto Equity Loan
Auto equity loans are a pretty straight-forward process, making them easy and quick to get. Start by searching online for “auto equity or title loan companies near me.” Many times these lenders exist online, making the application process even easier.
From there, you’ll need to provide the lender with information about your vehicle to prove it’s value. After letting the lender know how much you want to borrow, they’ll either approve or deny you based on their requirements.
Because an auto equity loan is a secured loan, you can expect lower interest rates than an unsecured loan.
The Drawbacks of Auto Equity Loans
There are a few drawbacks of auto equity loans to consider before applying for one.
Since you are offering the equity of your vehicle as collateral, you do face the possibility of repossession if you’re unable to repay the loan. Because of this, you should avoid taking out this kind of loan unless you’re certain you will have the money to make the payments on time.
Also, keep in mind that cars depreciate in value quickly. The average vehicle will lose half of its value just five years after ownership. This means that if you take out an equity loan near the value of your car, you could become upside down on the loan, owing more than the vehicle is actually worth.
Take Control of Your Financial Future
Now that you know more about auto equity loans and how you can use them to benefit your situation, it’s time to take control of your future.
While an auto equity loan is great for helping you out of a dire financial situation, these loans should only be used as a last resort. Adding to your debt and repaying back a loan with an interest rate can hurt your financial situation in the long run. To ensure you have an emergency fund in the future, you’ll want to live without loan repayments.
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