If you’ve been looking for some quick cash options, two of the more popular types of loans available are auto equity loans and car title loans. These loans have quite a few similarities, which leads many people to assume the terms are interchangeable. That isn’t the case, though, as there’s actually a big difference in these loans. This guide will cover everything you need to know about auto equity loans and car title loans, including what makes them different, how to get one and their many benefits.
The Key Difference Between Each Type of Loan
If you look at the basics for auto equity loans and car title loans, you could see why people figure they’re the same thing. Each type of loan has the following characteristics:
- Doesn’t require a credit check
- Uses your car as collateral
- Requires you to give the lender your car title while you repay your loan
- Has a very short application process and can be funded the same day you apply
Here’s what sets these loans apart from each other – to get a car title loan, you must be the full owner of the car and have it paid off. With an auto equity loan, you are using equity you’ve build up in a car to get a loan, even though you haven’t paid the car off in full yet.
Let’s say that you purchased a $25,000 car last year from a dealer in Miami and put $10,000 down. Due to depreciation, the car is now worth $20,000.
If you had that car fully paid off, you could get a car title loan, and the lender would base the amount they’d loan you on the current value of your car ($20,000). However, if you had paid off $5,000 on the car, you now have $10,000 in equity on the car, because the equity is the difference between the value of the car and what you haven’t paid off yet. You could get an auto equity loan, and the lender would base the amount they’d loan you on your equity in the car.
The amount you can borrow through a title loan will obviously be higher because the lender is considering the full value of the car. Of course, the car itself matters quite a bit, as well. A new Mercedes Benz that you’re halfway to paying off would likely score you a much bigger auto equity loan than the car title loan you’d get from a paid-off Kia that’s eight years old.
The Process to Get an Auto Equity Loan or a Car Title Loan
Despite the difference between auto equity loans and car title loans, the process to get them is exactly the same. Here’s how that works:
- Fill out an application with a lender.
- Allow the lender to inspect your car and see what it’s currently worth. If you’re getting an auto equity loan, you’ll also need to show them how much you have left on your loan.
- Give the lender the title to your car. If this has been lost or stolen, you can request a duplicate from one of the many DHSMV offices in the Miami area.
- Receive the money for your loan.
After you get that money, you can put it towards whatever you would like. The amount due for your loan payment will be your loan principal, which is the amount you borrowed, along with any interest and other financing charges. If you’re unable to get the entire loan paid off at the end of the term, your alternative is to pay off any interest and other financing charges. You can then extend the loan into another term.
Benefits to Auto Equity Loans and Car Title Loans
Because of how similar auto equity loans and car title loans are, they have the same benefits. They’re each extremely convenient, because the application process is extremely fast and requires very little in the way of documentation. In fact, the only items you will need are your car, your car title and your ID to show the lender that you’re at least 18 years old. For an auto equity loan, make sure you bring the most recent statement on your loan, as well.
Remember that with either type of loan, your car stays in your possession during the loan term. This means you won’t be inconvenienced when you need to get to work, school or anywhere else. The only way you’d lose the car is if you defaulted and the lender needed to repossess it.
While you end up spending more in interest when you need to extend one of these loans, it’s nice to at least have that option. You could find yourself short on funds when your payment due date rolls around. In situations like that, it’s a huge relief to be able to extend your loan so easily.
Getting the Right Loan
Whether you get an auto equity loan or a car title loan all depends on if you’re still paying off your car or not. Car title loans are the more common option, but auto equity loans provide a good alternative for borrowers who need a short-term loan and haven’t completed their auto loan payments yet.