A car is considered an asset and a convenient mode of transportation for many. No wonder it's rapidly becoming an absolute necessity to own a car these days. Many people take out a secured loan to get a car and then pay it off with monthly installments. In addition, there are also people who use the equity in their vehicle to borrow money if they need it.
Did you know you can use your car's equity to get the money you need? Read on to learn what car equity is and how can maintaining equity in your vehicle benefit you.
What Is Equity in a Car?
In simple words, Car Equity can be defined as the portion of the vehicle you own while you’re making payments on your car loan. If you’ve paid off the car loan in full, the vehicle’s entire value becomes car equity.
The equity in a car can be either represented in dollar terms or the percentage of your vehicle's current market value. Let’s say your car’s current value is $24,000, and you have an outstanding loan balance on the same vehicle for $20,000. Here the car equity is $4,000 or 16.67% of the car's current resale value.
How To Calculate Your Car's Equity?
When you borrow a loan to buy your car, you start making loan payments to get full ownership of the vehicle. As you keep paying the loan payments, you start gaining partial ownership of the car for the amount you’ve paid. This portion is the equity and can be easily calculated in monetary value.
Knowing your car’s equity can be helpful when you need money in an emergency. Remember if you have a financed car, it can either have positive or negative equity. The difference between your car’s value and the loan you owe to the car loan lender should give you an idea of whether you have positive or negative equity in your car.
In essence, you will need just two items to calculate your car's equity:
- The current balance of your car loan
- The actual resale value of your car
If the car you own is worth more than the outstanding balance you still owe on loan, it has positive equity. If you owe more on your car loan than your financed car is worth, it has negative equity.
Determining The Current Balance Of Your Car Loan
You can find out how much you still have to pay on the car loan by loan balance calculators available online. If you get a monthly statement from your car loan provider or if you have access to your loan information online, then you can quickly obtain your car loan balance from the latest monthly statement or online loan information. The information on the most recent statement or online account provided by the loan provider should tell you how much you still owe on your car loan.
In case you do not get monthly statements from your loan provider, you will need to contact your car loan lenders such as a bank, car dealership, or online lender to get a current payoff amount on your auto or car loan.
Find Your Car's Actual Value
Once you know your loan’s current balance, you need to determine the vehicle’s actual value. You may need to do some math here since the automotive market fluctuates greatly depending on the season, the year, and even the day. There are some other factors to understand as well when it comes to determining actual values on cars.
Here are the significant factors that affect your car’s value:
- Condition of your car
- Mileage
- Car Color
- Car’s brand and model
- Modifications
- Service history
The above factors can reduce or, in some cases, improve your car's worth. This means even if your vehicle is in a similar condition to when you bought it, the price you paid may not be the actual value of the car's current market value.
There Are Two Ways To Determine The Actual Value Of A Car:
Get An Appraisal At A Car Dealership
A reputable used car dealership can give you an accurate appraisal of your car. Even a used car auction house should be able to provide you with an appraisal of your car. However, the easiest and most accurate way to get an appraisal of your vehicle is to get it at a car dealership because they usually give more precise analysis than a computer or a used car auction house.
If you go to a car dealership, they will inspect the condition of your car and compare it with other vehicles on the market with similar makes, models, and conditions to determine the most accurate value of your vehicle and its demand. The whole process will take about half an hour and should be free. A car dealer, typically a manager at a car dealership, should be able to tell you the trade-in-value and the market value of your car.
Use An Online Appraisal Tool
You can use an online appraisal tool that will estimate the market value of your car. There are a lot of websites with online appraisal tools to help you determine the value of your car. The Kelley Blue Book (KBB) is one of the most trusted resources online, which will estimate the market value of your vehicle based on the make, model, and condition of it. An online appraisal tool such as the Kelley Blue Book is easy to use to find the value of a car.
When using an online appraisal tool, make sure to enter your vehicle's information as accurately as possible whether you would like to get a trade-in value or a private-sale value. The demand and market value of your vehicle can change based on the place where you are selling the vehicle, mainly depending on the climate and terrain of the area.
Other reputable sites that you can use to get an online appraisal of your car include Edmunds, CARFAX , NADAguides, and more. The value that any of these online appraisal tools give you is a number that you will use to calculate what is equity in a car.
How to Use Your Car's Equity?
If you have taken out a loan on your car from a bank, a car dealership, or an online lender, then you may want to calculate your car's equity to see if you could gain some benefit out of it. The positive equity in your car can help you refinance your auto loan to save on interest or reduce your monthly payment.
On the other hand, if you’re struggling to get a personal loan because your credit score is bad, you may choose to use the value of your car to borrow money from a traditional lender or a reputable online lender. That is where an auto equity loan comes in. You can qualify for an auto or title equity loan using your car's equity.
Most community banks, some small banks, and some credit unions offer auto equity loans. The rates for auto equity loans depend on your credit score if you hurt your credit score and the value of your car. However, usually, these traditional lenders require that consumers have a good credit score and credit history to qualify for an auto equity loan. On the other hand, some reputable online lenders offer cash for liens on car titles to people with low credit scores and credit history.
Car equity or registration loan providers typically do their evaluation and appraisal of your car, but it works similarly. You could get a loan using the equity in your car and your ability to pay a loan. The good news is that although you'll be getting a car collateral loan, you do not have to leave it behind.
Is a Title Equity Loan Right for Me?
When you have a financed car and you’re hit by a financial emergency, the positive equity in your vehicle can be turned into cash today. Getting a loan using this positive equity can help you keep your vehicle and continue using it while you repay your loan.
CASH 1 is ready to help you get cash fast today! If you have positive equity available on your car, you can put it to work for you by taking out an auto equity loan. A title equity loan with a lien allows you to get same day cash, and you can use it for paying bills, medical expenses and other expenses you may have to pay urgently.
The ease and speed with which you can secure a loan using equity in your car makes it right for not just you but even those with poor credit. However, before you apply, it is crucial to assess how much you want to borrow and the maximum loan payments that fit your budget.