If you’re interested in getting an auto title loan, you may be dismayed to find out that you need a clear title to qualify. In other words, you can’t get auto title loans while still making payments on the car.
The good news is that some of the same lenders that offer car title loans also offer auto equity loans, which typically don’t have the same requirement.
What is an auto equity loan?
An auto equity loan functions similarly to a home equity loan. It’s possible to calculate the equity you have in your car. Subtract how much you owe on your auto loan from the car’s fair market value.
For example, say you owe $5,000, and your car’s fair market value is $7,500. In this scenario, you have $2,500 in auto equity.
An auto equity loan allows you to borrow against the equity you have in your car. How much depends on the lender, but you typically won’t be able to acquire the full amount.
The biggest drawback of auto equity loans is that they put your car at risk. Since you’re using the equity in your vehicle as collateral for the loan, the lender has the right to repossess your vehicle if you default on your payments.
“I defaulted on my auto equity loan because my ex-wife drained my bank account when she left,” says Ben Brady, whose name has been changed for confidentiality. “But the lender wasn’t interested in the reason, and they took my car on top of it all. What’s worse, I only had six months left on loan, so I probably could have just sold the car and gotten more out of it.”
That said, some lenders offer auto equity loans with lower interest rates than what you’d get with an auto title loan, so it can be an affordable alternative.
Where to find auto equity loans
Big banks don’t usually offer auto equity loans. However, you might find one with smaller banks in your area and specialized lenders.
If your local credit union offers auto equity loans without a clear title, that’s your best option. Credit unions cap such loan interest rates at 18%, although it may charge fees on top of that to increase the overall APR.
Here are a few other lenders who offer auto equity loans:
Although LoanMart doesn’t specifically offer auto equity loans as a separate loan product, it does consider auto title loans on cars not paid off yet. The caveat is that you typically have to have a significant amount of equity in the car to qualify. Also, you may end up paying a higher interest rate because it’s still considered an auto title loan.
Another plus for LoanMart is that it offers long repayment periods on some of its loans. With long repayment periods, you might not get stuck with a short-term loan that you can’t afford to pay back.
Like LoanMart, Speedy Cash treats auto equity loans as an auto title loan, just with the small change to the status of your title. As a result, you may end up paying similar interest rates to what the lender offers with its title loans, which can be exorbitant. Also, it’s repayment terms aren’t as generous as LoanMart’s.
If you do happen to have a clear title, or you will soon, consider Finova Financial. Your credit doesn’t have to be in good shape to apply. And despite its friendliness toward folks with bad credit, the lender charges reasonable interest rates.
But as we already implied, the only drawback to Finova Financial is that it’s a rare auto equity loan lender that requires that you have a clear title.
What are the eligibility requirements for auto equity loans?
For the most part, the same requirements apply as with auto title loans. You need a car that’s in driving condition, a valid ID, proof of residence, and proof of insurance (usually including collision and comprehensive insurance).
But rather than providing a clear title, you have to provide proof of the first lien or evidence that you’re still making payments on the car.
Keep in mind that your car must also be eligible. When you take your vehicle to a lender that offers auto equity loans, it will run some numbers to determine the car’s fair market value. Then, it will subtract how much you owe based on the information on the first lien that you share.
If the equity is too low, it might not meet the lender’s minimum, so be sure to shop around as the appraisal process and loan minimums can differ by lender.
Other ways to get cash fast
Auto equity loans can be a great way to get cash now. You typically get the check before you walk out the door. However, it’s not necessarily the cheapest way to do it. Here are just a few other ways to consider before you opt for an auto equity loan.
Get a payroll advance: Ask your payroll representative at work if you can get an advance on your next paycheck. If you’ve already worked the hours, it might not be a hassle to get your paycheck to you sooner. If not, consider using a company like EarnIn, which offers paycheck advances for no charge — you pay what you think is fair.
Sell off some junk: We all have stuff lying around the house that we no longer need; so why not sell it? It might not get you the full amount you need, but it can help.
Ask family: If you have a good relationship with a family member, you might be able to score a no-interest loan. Just be sure that you pay it back in time, possibly even early. The last thing you want is to ruin a relationship over money. This scenario happened to Brady with a previous emergency, so he didn’t feel like he could reach out again.
If, however, you’ve exhausted all of your other options and still need cash, check out the lenders we’ve listed here, as well as other auto title lenders that may offer auto equity loans to people who don’t yet have a clear title. The more lenders you compare, the easier it will be to make sure you’re getting the best deal.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.