If you are facing a financial emergency and need to borrow $1,000 or more, you should consider using your automobile as collateral for one of two short-term loan options. These are typically referred to as auto equity loans or title loans, and though some people use the phrases synonymously, they aren’t exactly the same. There are a few variables that set the two apart, the biggest of which is the issue of vehicle ownership. Here is a closer look at the details of each loan type.
Auto Equity Loans
These loans are for borrowers who are still making payments on the vehicle and do not yet own it in the eyes of the law. The legal owner is the lien holder-usually the bank or credit union that originally financed the purchase of the car. Regardless, you may still qualify for equity loans if you have sufficient equity in the vehicle.
The minimum amount of equity needed varies from lender to lender, but a general rule of thumb is that you will only be able to get a loan in the amount of 50% of your equity. That means in order to qualify for a $1,000 loan, you’ll need to have at least $2,000 worth of equity in the vehicle.
Other important points to keep in mind regarding auto equity loans include the following:
- You must be at least 18 years old, employed, have a valid driver’s license, and show proof of insurance on your vehicle.
- You will have to provide documents detailing the remaining balance on your original loan, as well as your payment history.
- One condition of the loan contract will be that you agree to let the new lender take a security interest in the car, allowing them to seize the vehicle if you do not repay the debt on time.
- You will be able to continue driving the car as usual for the duration of the loan.
- People with very poor credit ratings may have trouble getting approved for loans.
Title loans are similar to auto equity loans in many respects. For instance, the minimum requirements concerning age, employment, and vehicle insurance are typically the same, as is the risk of repossession as a result of nonpayment. The main difference is that in order to qualify for title loans, you must own your car outright. If you are still making monthly payments on the original loan or if there is any other type of lien on the vehicle, your application will not even be considered.
Other important points regarding title loans are:
- The vehicle must be less than 10 years old, drivable, and have a minimum wholesale value of $2,500 or more, depending on the lender.
- The loan amount will be determined by your projected ability to make timely payments, your car’s overall value, and other criteria of this nature.
- If approved for the loan, you will be required to hand over the vehicle title-and perhaps even a spare key-when you sign the contract.
- You will have full access to the vehicle as long as you do not miss any payments.
- Many people with bad credit or no credit may still qualify for title loans.
As you can see, the general terms, conditions, and qualification criteria for auto equity loans and title loans are the same. The only differences you need to be aware of before applying to involve vehicle ownership and approval rates for people with less than perfect credit. If you’re still unsure of which type of loan you should apply for, you can ask the lender to review the specifics of your case before deciding whether or not to move forward.
Source by Stephanie Elman