Should You Get An Auto Equity Loan Or A Title Loan?

If you've recently found yourself in a temporary financial crunch, you may be looking for ways to access cash quickly to help avoid utility shutoff, eviction, or even foreclosure. If you don't have a steady job, a paycheck advance may be out of the question. However, you may still be able to tap the equity in a paid-off car by taking out a title loan or auto equity loan. Read on to learn more about the differences between these short-term loans, as well as your loan options if you already owe debt on your vehicle.

What are the differences between an auto equity loan and a title loan?

These terms are similar enough to be used interchangeably -- however, there are some differences between these types of loans, and one may be more suitable than the other for your situation.

  • Auto equity loans are often offered by banks as a personal loan secured by the value of your vehicle as collateral. These loans are somewhat long-term, and may even be as long as a traditional auto loan, allowing you to take out much of the equity in your vehicle. Although you don't need spectacular credit to take out an auto equity loan, you'll likely need to have some income or pre-existing relationship with a lender that offers an equity loan.
  • Title loans are offered by private lenders and are more similar to a pawn transaction. In exchange for a certain percentage of your vehicle's value in cash, you'll hand over the title to your vehicle to the lender, who may place a GPS or other tracking device on it to facilitate recovery if you default on the loan. Once the loan has come due (usually between 10 days and a month later), you'll need to renew the loan and pay more interest, pay off the loan, or give up the keys to your vehicle. These loans are available for consumers with bad credit, and may be a viable option for someone who has recently been through foreclosure or bankruptcy.

Auto equity loans are generally less risky than title loans, as you'll still have use of your vehicle for a few months after you've defaulted on your payments, rather than having the vehicle immediately repossessed and risking job loss or other consequences. However, these loans have more stringent credit requirements and a lengthier application process -- so if you need money within a few days and can repay it in a few weeks, a title loan may be your best choice.

What options are available if you already have an auto loan?

Title loans and auto equity loans often aren't available if you already have an auto payment -- because the auto equity lender's claim to your vehicle would be secondary to the primary lender's claim, this transaction is often too risky and not financially worthwhile from the second lender's perspective. If you were to default on your auto equity loan but not the underlying loan, the auto equity lender might not have enough legal clout to force the sale of your vehicle, and could instead be forced to sue you in small claims court.

However, if you're still making payments on your car, you may be able to refinance to a lower interest rate and cash out some of your equity while doing so, either by increasing the loan amount or extending the repayment term. By switching to a lower interest rate, you'll be able to put cash into your pocket without substantially increasing your monthly obligation. Like auto equity loans, refinances often have a minimum credit requirement -- however, you may be able to secure a loan with less-than-perfect credit by paying a slightly higher interest rate.

For more information about these loans, check out a website like