How Auto Equity Loans Work

What You Need to Know

From time to time, we all run into a bit of trouble with money. Sometimes it’s an unexpected medical or home repair bill. For others, a natural disaster or injury may have put them out of work. Many small start-up companies have also been created with the aid of a short-term loan service.

Whatever the reason, an auto equity loan is one of the easiest ways to get the money that you need. Unlike traditional bank or personal loans, you don’t have to wait days or even weeks to get approved. The only thing that you need is the title to a vehicle that you own, proof of income, and some basic personal information.

Auto equity loans are often considered title loans or pink slip loans, however there are slight differences.

Many auto equity loan services can even give you your requested amount the very same day. This is great if you’re under pressure and can’t afford a long wait time or approval process.

What Is A Auto Equity Loan?

Essentially, an auto equity loan is a loan which uses your personal vehicle as collateral. Most traditional lenders want to know your credit score, require you to have sufficient credit history, and will make you wait days to weeks while they await approval from an “underwriter” somewhere up the corporate ladder.

An auto equity loan essentially allows you to cut out all of the nonsense and long wait times. Instead of having to review your entire credit history with the lender and wait for approval, you simply present them with proof of income and proof of ownership of your vehicle.
After they’ve appraised your car, they’ll cut you a check or direct deposit the amount into your bank account.

How Do Auto Equity Loans Work?

Auto equity loans are given out based on the value of your car and ability to pay back the loan. Since you’ll be using your vehicle as collateral, the lenders will start by appraising the dollar value of your car. Lenders usually turn to Kelly Blue Book to get an accurate evaluation. You will then be able to request a loan amount equal to or less than the value of your car.

After the loan is given, the lender will take your title and put a lien on it. In the eyes of the law, they are now the legal owners of your vehicle until you pay them back and they remove the lien. This means that if you stop making payments, they are legally allowed to take your vehicle and sell it at auction to get their money back.

Although a lender may place a lien on your title, you may still be able to keep and drive your car daily.

Since we’re on the topic, it’s worth noting that this is usually a last resort measure. It takes then time and money to repossess and resell a car, so nine times out of ten they would much rather have your money.

That being said, if you ever run into a situation where you’re having trouble making payments, they’ll usually be able to work out a deal with you to lower your monthly payment amount instead of jumping straight into taking your car.

Another thing to keep in mind is that auto equity loans are designed to be short-term loans. The interest rate is usually higher than traditional bank loans, and the faster that you can pay back the loan, the lower the amount that you’ll have to pay in interest fees and expenses.

Lender Requirements

The great thing about auto equity loans is that they’re incredibly easy to apply for. As long as you own a vehicle with your name on the title and have proof of a job, you’ll be able to qualify for a loan equal to or less than the value of your car. Here’s what most lenders will require from their borrowers:

  • Vehicle (in working order and with title in-hand)
  • Insurance and valid plates on the vehicle
  • Your personal information (license, social security)
  • Proof of income

Comparing the Alternatives

If you’re in need of some quick cash and you need to borrow some money, you have quite a few options. There are payday loans, bank loans, personal loans, and ultra short-term title loans. In general, auto equity loans are a little bit safer than title loans (who tend to have even higher interest rates).

Auto equity loans are also a lot easier to obtain than traditional loans. It doesn’t matter if you have bad credit or no credit. As long as you own a vehicle and have a job, you’re approved.

Auto Equity Loan Laws

When short-term title loans and auto equity loans first came on the scene, there were a lot of predatory lenders who would lend huge amounts to people who had no way of paying them back. In an effort to reduce this, many states started to regulate who lenders were allowed to lend to, and how much they could lend. Here are some of the legal regulations that may apply in your particular state:

  • Limits on APR and fixed interest rates
  • Some states don’t allow military to take out title loans
  • All borrowers must be at least 18 years of age
  • Borrowers must be U.S. citizens

Depending on where you live, you may have more or less laws regulating auto equity loans. To be sure whether you qualify, check your state’s individual lending laws.


If you need some quick cash and you have a way to pay back the amount borrowed, an auto equity loan is a great way to get the money that you need without having to deal with long approval times and extensive credit/background checks. If you’ve got a job and a working car in your name, then you can get a loan!


“What is an Auto Equity Loan and How Do You Get One?”, Lending Times, 2017,