Equity loans are similar to home equity loans, except that instead of using a home you will use your vehicle’s value as collateral for a short-term loan. You will then repay the loan with interest. Can I take a loan against my car?
Car loans can be attractive if you need quick cash due to the fact that it is easier to qualify for a car loan than a traditional one because the car acts as collateral. In addition, some equity loans have longer periods and lower interest rates than other risky loans, such as title loans and payday loans.
On the other hand, equity loans can be expensive. And if you can’t pay back the loan according to its terms, the loan can be deducted – and you can lose the car. Here’s what you should know before taking out a loan for equity.
Where to find car loans
Most local banks and some credit unions offer equity loans. The interest rate on such loans depends on the creditworthiness, credit history and value of the car.
The four largest banks in the country in terms of deposits – Bank of America, Chase, Citibank and Wells Fargo – do not offer car loans, but some smaller banks do.
At federal savings banks, the maximum annual interest rate that can be imposed on such loans is 18%, although additional application fees may apply.
You may qualify for an auto equity loan from a lender other than a community bank or credit union. These lenders, many of whom operate online, offer secured loans with a maximum interest rate of 36% and repayment periods of two to five years. Regulators and consumer ombudsmen say 36% is the upper limit for an affordable loan.
Short-term bank loans
Before committing to a three-digit interest rate car loan, borrowers should first try to secure a traditional loan with a local bank or credit union. Even the most expensive bank loans are cheaper than title loans. What’s more, some banks will provide collateral loans to borrowers with less than star loans. Therefore, employees who own cars can pledge their vehicles on bank loans at an interest rate.
Loss of a car
One of the biggest problems with the title loans is the risk of losing your car. According to a study conducted in May 2016 by the Consumer Protection Office, one in five borrowers have a vehicle recovered. If you are unable to pay, the lender can take over the car, sell it and keep some of the money. In many cases, lenders keep the total amount of proceeds – because that was the value of the car on the resale market.
If your car is taken over, things can slide down quickly. You may not be able to get to work and still earn. Return to work and return will take much longer. Longer journeys affect the quality of life because you and your family will find it difficult to perform everyday tasks such as shopping and getting to school. If you don’t have to put your car on the line, don’t do it.