Taking out an auto equity loan can give you fast cash when you need it and may be useful if you have poor credit and need to borrow money. As with any type of loan, there are pros and cons to auto equity loans and strict criteria for securing one.

In this article, we’re going to take a look at auto equity loans, what the requirements are, and what the advantages and disadvantages of taking one out are. Take a look now to learn more.

What is a Car Equity Loan?

A car equity loan is exactly as it sounds–it is a loan that uses the equity in your car as collateral for other personal loans. They are similar to home equity loans (though the equity is understandably much less in your car than in your home).

For an auto equity loan, you don’t need to fully own your car. The equity in your car is usually equal to the fair market value of your car minus any obligations you owe on it (usually in the form of a car loan).

What are Auto Title Loans?

In researching for an auto equity loan, you may have come across the term auto title loan. While these loans are considered similar, there are some big differences.

To begin with, auto title loans are for much shorter periods. This kind of short-term loan is also much more expensive than an auto equity loan. They have much higher interest rates than auto equity loans and you need to fully own your car too.

However, though they are more expensive, auto title loans can be used for emergency cash in unprecedented situations. They are less risky than other methods of borrowing money.

Requirements for a Car Equity Loan

Auto equity loans, like any other kind of loan, have a set of requirements you need to meet before you will be offered one. To be eligible for an auto equity loan, the criteria you must meet are as follows.

  • Proof of income: This is usually in the form of recent pay stubs and is essential so that lenders know you can actually pay them back.
  • Collision car insurance: This needs to cover your car for a multitude of issues. It is a way of protecting the collateral and making sure the lender can always recoup their money.
  • A car that is registered in your name: For auto equity, you need proof that you do actually own the car.

Unlike many other kinds of loans, for an auto equity loan, you don’t actually need to have a good credit score. Usually, people use auto equity loans if the credit unions have given them a low score anyway.

Pros and Cons of a Car Equity Loan

Any type of personal loan will always have advantages and disadvantages, and it is the same with an auto equity loan. Below, we have gone into detail about the pros and cons of car equity loans so that you can better understand if this kind of auto loan is right for you.


  • Longer-term loans – People with bad credit don’t really have many options for borrowing money. A car equity loan offers longer terms and a longer period in which to pay it back, unlike other options including payday loans.
  • Easier to qualify for – Anyone who has taken out any kind of secured loan will know the nail-biting of waiting to be approved, but because you don’t need to worry about your credit score, it is generally easier to get approval.
  • You don’t need to fully own your car – If you bought your vehicle with a car loan, then you don’t need to have fully paid it off before you can get a car equity loan.


  • Expensive – Using car equity is not the cheapest method of getting some cash, so you should seriously consider it before doing so.
  • Could end up losing your car – Defaulting on an auto equity loan means you could lose your car. This could be a disaster if you rely upon your car for work, the school run, and more.

Should I Take Out an Auto Equity Loan?

If you’re considering whether to get an auto equity loan, you should weigh up the pros and cons first. It can be a really easy way to get cash, but there are cons including the potential loss of your car.

If you fully own your car, you could consider a vehicle title loan which is a shorter loan but is much more expensive. Many banks and credit unions will offer auto equity loans, along with other kinds of equity loans, but this doesn’t mean it is the safest option for you and your circumstances.

A vehicle equity loan could be for you if you have poor credit and are in need of emergency cash. However, you should take time to consider whether you can keep up with payments before taking one out.

Final Thoughts: Auto Equity Loans Explained

Car equity loans are auto loans in which your car is used as collateral. They are good for people with poor credit but can be incredibly expensive and could result in the loss of your car. As with any loan scheme, what is right for one person isn’t for another. Take the time to look at the pros and cons of this kind of loan before taking one out.

Looking for a car financing and loan company in Ontario? Look no further than Car Loan Masters. We’re proud to offer auto loans to people, even with bad credit, and we can get you approved in fewer than 20 minutes. Get in touch today to find out more about our car loans and other services.