According to statistics, a whopping 7 million US citizens hold car loans.
The reason why 43% of adults in America owe money on their car is simple. Cars are large assets and are often too expensive for most people to purchase with cash.
The upside to having a car loan is that while you are it off, you’re building equity. And once your vehicle is completely paid off, you’ll be in possession of an asset that you could use as collateral should you need a new short term loan. These types of loans are known as title loans.
Using assets as collateral is a great way to easily secure loans. The risk for the lender is less, as they have the asset deed as security. This also means you can enjoy lower requirements.
Are you curious about how you can use your car as collateral for a title loan? If the answer is yes, then you need to know the difference between equity and ownership when it comes to your vehicle.
Keep reading to find this out, as well as how car ownership can secure you a loan if you need one.
What Is Car Equity?
First, let’s take a look at what car equity is. Simply put, car equity refers to the portion of your car’s value that you have already paid off and own.
For instance, let’s say your vehicle is worth $27,000, and you currently still owe $15,000 on your car loan. This would mean that your car equity is $12,000.
Take note that your equity is based on the paid-off portion of the current actual value of the car, not on the paid-off portion of what you originally purchased it for.
Unfortunately, unless you invested in a vintage, classic, or collectible vehicle, the value of your car will decrease over time. Therefore, as you are paying off the loan, the “new” value of the car evaporates, and your equity consists of the market value, less what you owe on the car.
In some situations, if you have very long terms on your car loan (or have damaged your car), you might experience what is known as negative equity. This is where the value of the vehicle has dropped to the point where you owe more than what it’s currently worth.
Fortunately for car owners however, secondhand car prices have recently risen. This means you’re likely to enjoy more equity in your vehicle as you’re paying it off.
Once you have fully paid off your car and do not owe any money on it, then you have achieved full equity. At this point, you have complete ownership over the car.
So, in short, you own equity in your car as you are paying it off and only achieve ownership once your loan payments are complete.
How to Get a Loan Using Your Car Equity as Collateral
As mentioned above, because cars are valuable assets, they can be used as collateral for a title loan. When taking out a title loan, you simply place your car title in the lender’s possession in exchange for the loan.
Once you have paid off the loan, you’ll receive your title back. It’s that simple. Best of all, you retain use of your car while you’re making the payments.
Here in Georgia, the requirements for a title loan are:
- You must have a legal, valid state drivers license
- You must be 18 years or older
- You must hold a lien-free car title in your name
Take note that in most cases you can only apply for a title loan if you have achieved full car ownership. In some states, it is possible to get a car equity loan (where you can use the equity in your car as collateral). However, these loans typically come with sub-optimal terms and are less streamlined.
These types of title loans are also much harder to find, are only available in certain places, and can take longer to be approved for. Besides this, you also won’t typically be able to borrow a significant amount, as you can only borrow a percentage of your equity.
The Advantages of Title Loans
Have you achieved full car ownership and are contemplating taking out a car title loan? If so, here are some of the advantages of these types of loans.
For one, they are easy to get. Most title loan companies won’t perform a credit check or make you go through a lengthy application process. If you go with a good lender, you should receive the funds from the loan within a matter hours.
For example, here at Georgia Title Loans, we have streamlined our application process to the point where you can get approved in under 30 minutes with the help of one of our friendly loan specialists.
The other benefit is that you get to keep your car. You won’t be inconvenienced by having to give up your vehicle. Instead, you can drive it away, while its title works as collateral for you.
Lastly, a car title loan can help you access higher loan amounts than you could apply for with other types of credit. This is especially true if you have used up most of your available credit or are having issues with your credit score.
We Offer Competitive Terms on Title Loans in the Area
Once you build up car equity and have achieved full car ownership, you can apply for a title loan. Title loans offer a variety of advantages, especially if you are strapped for cash and need a solution fast.
Are you considering taking out a title loan? If so, you’re in the right place. We specialize in vehicle title loans. Our smooth application process is lightning quick, and we extend loans of up to $50,000.
Visit us in our Lawrenceville or Norcross locations, contact us today, or start your application now.