What is Car Equity On a Car Loan And How Can You Use It?

 What is Car Equity On a Car Loan And How Can You Use It?

Car equity is nothing but the difference between the resale value of the car and the amount that the owner of the car owes on it. In other words, you can say that car equity is a method of quantifying the car’s portion that belongs to the car owner. The car equity can be positive as well as negative. You will get positive equity in your vehicle when the worth of the car value is higher than that of the amount you owe on it. But if the car’s worth is less than that of what you owe on it, it will be negative. One of the main reasons why a person gets negative car equity is excessively high mileage on the car at the loan period.

Many people do not know about car equity and how to use your car equity. In this article, we have come up with all the details of car equity and its use so that you can get a fair idea of using car equity.

How Can You Use Car Equity?

A loan that uses car equity can be considered as a secure type of loan. When you borrow an equity loan the lender will use your car as a loan’s collateral. This type of loan is associated with a huge risk since you will require having enough equity invested in your car for financing your loan. The biggest risk of car equity loan is when you will not be able to pay off your monthly payment or EMI. In such a case, you will not only have negative equity or negative credit score but the lender will have the full right to repossess your car. 

In case you have negative equity then you have a very limited option although you can always request your lender to consider your case and provide you more favorable loan terms. However, if you have a good credit score then you may be offered a loan on your new car by your lender that will cover the cost of your car as well as the amount which you still owe on the old car. Hence it is always better to pay off the loan as quickly as possible and get rid of negative equity. 

As an alternative you can also think of getting a car title loan if you have possession of the title which is also in your name. The requirement of a car title loan may differ from state to state and lender to lender. But  if you have built equity in your car, you have an option to borrow a loan using the car’s title and not the entire car. This way you will have your car with you to drive you to work even while making payments for the loan. 

Hence it is always advisable not to take a car equity loan if you are not financially sound and are not sure that you will be able to pay off your monthly payment. You should first weigh all the options and then choose a loan that doesn’t add much burden to you financially. 



Ruth Hill