Auto Equity Loans: What They Are and How They Work

Key takeaways

An auto equity loan lets you borrow against the equity in your vehicle, using the car as collateral, while you keep driving it.
Compared with a short-term title loan, an auto equity loan typically offers longer terms, fixed monthly payments, and lower costs.
Loans through Upstart include an auto-secured personal loan option, which may be worth comparing before you borrow against your vehicle.

An auto equity loan allows you to borrow against the equity in your vehicle. In other words, you can use your car’s current market value minus anything you still owe on it as collateral for a loan, and you can keep driving the vehicle while paying the loan back.

This is a different type of financing than a short-term title loan, and because it is a longer-term installment loan underwritten on your credit, it is generally safer. In this article, we’ll discuss how an auto equity loan works, how it differs from a title loan, and what factors can determine whether you qualify.

How does an auto equity loan work?

Equity in a vehicle is its current market value minus any remaining loan balance. A lender determines what your vehicle is worth, and then subtracts any amount you still owe on it. The difference is your available equity. The amount of equity that you can borrow against varies by lender, so you may be able to borrow more through some lenders than others.

If you are approved for an auto equity loan, the lender places a lien on the vehicle’s title. You can continue to drive the car, and you’ll repay the loan in fixed monthly installments until it’s paid off, at which point the lien will be released. This is similar to the auto-secured personal loan option through Upstart, which may be available for vehicles you own outright.

If you want the mechanics of how this works, here is more on using your car as collateral for a personal loan.

Pros of an Auto Equity Loan

Using collateral to secure a loan may result in a lower interest rate than an unsecured loan
Terms are typically longer, and payments are more predictable than with a title loan.
You keep using the vehicle throughout the loan term.

Cons of an Auto Equity Loan

The vehicle secures the loan, so missed payments can lead to repossession.
The amount available to borrow depends on your vehicle’s market value and equity, which can vary by lender.
Not every lender offers auto equity loans, so your options can be narrower than with an unsecured personal loan.

There’s one key distinction that is worth clarifying before we move on. Loans through Upstart include an auto-secured personal loan option, and title loans are not offered through Upstart. These two products are not interchangeable in cost or loan terms, as we’ll discuss in the next section.

Auto equity loan vs. title loan: key differences

Both of these loan products involve borrowing against a vehicle’s equity, but that’s where the similarities end. Here’s a comparison table of the key differences to know:

	Title loan	Auto-secured personal loan
Cost structure	Typically has very high fees and APRs. A 2016 CFPB study of single-payment auto title loans found a typical APR near 300%	Priced like a traditional installment loan, with a fixed rate that is disclosed before you agree to the terms.
Repayment term	Weeks to a few months. Single-payment title loans are often due in about 30 days.	Months to a few years, repaid in fixed monthly installments.
Repossession risk	Most title loans allow near-immediate repossession after a missed payment. The 2016 CFPB study found that about one in five single-payment title loan borrowers have their vehicle seized.	Standard installment loan default and collections procedures. This may mean more time to resolve a missed payment before repossession.
Credit impact	Typically not reported to the credit bureaus, so on-time payments generally don’t affect credit history.	Reported, so on-time payments can help you build credit over time.

The title loan renewal pattern is worth calling out for cost comparison purposes. The same 2016 CFPB study found that over four in five single-payment title loans are renewed on their due date, simply because the borrower cannot cover the entire payment at once. A loan intended as a 30-day fix often becomes a months-long obligation, with fees stacking at each renewal.

Borrowing against a vehicle isn’t necessarily a bad idea in itself, but the structure of the loan is an important factor. If your goal is to eliminate high-cost balances instead of covering a one-time expense, it may be a smart idea to compare using loans through Upstart to consolidate debt instead.

When should you apply for an auto equity loan?

Applying for an auto equity loan can make sense if you have significant equity in your vehicle, and you want a longer and more predictable repayment structure than a short-term loan typically has. Here are the main reasons why you may want to apply for one:

You have significant equity in a vehicle, meaning that it’s worth far more than you owe.
You want to avoid the high costs and short repayment window of a title loan.
You are comparing costs to an unsecured personal loan and want a potentially lower rate. Here is more information on secured vs. unsecured loans.
You are comfortable with a lender placing a lien on the title while you keep driving the car.

An auto equity loan is not the right choice if the payments are not easily affordable on your current income. Defaulting on an auto equity loan can put your vehicle at risk. An unsecured personal loan doesn’t put your vehicle at risk, but defaulting on one can still lead to collections and damage to your credit.

Can you qualify for an auto equity loan?

Qualification typically comes down to three factors: your credit, your ability to repay, and the vehicle. So let’s take these one at a time:

Credit history: Lenders will look at your credit report and payment history. If you have strong credit, it can result in a lower interest rate, but it’s important to note that a thin credit file doesn’t necessarily disqualify you.
Income and employment: This is the “ability to repay” part. Lenders want to see documented income, a stable employment history, and a debt-to-income (DTI) ratio that indicates you can comfortably afford the new loan payment. For more details on how the income side of qualifying works, see income requirements for loans through Upstart.
Vehicle: Because the car is used to secure the loan, its market value and how much you still owe (if anything) both affect the amount that you may be able to borrow. Many lenders have guidelines for vehicle age, mileage, and condition that must be met in order for the vehicle to qualify.

Upstart’s underwriting model can consider several other types of data, including education², alongside your credit score. That broader approach means that a thin credit file might not be a disqualifying factor, although approval and loan terms depend on the entire application.

Can you get an auto equity loan through Upstart?

Yes. Loans through Upstart include an auto-secured personal loan option that lets you borrow against a vehicle you own outright.

This product is a vehicle-secured personal loan, not a title loan. Terms are typically longer, and costs are typically lower than what you’d find with short-term title lending. Payments are fixed, and approval decisions can consider your income, employment, and education², along with your credit score. If you own your vehicle outright and have an expense to cover, an auto-secured personal loan may be a lower-cost option than some alternatives.

You can check your rate for loans through Upstart and see what may be available, with a soft credit pull¹, before you commit to anything.

FAQ

What is an auto equity loan?

An auto equity loan is a loan that uses your vehicle as collateral. You keep your car and repay the loan in fixed monthly installments, while the lender places a lien on your vehicle’s title.

How is an auto equity loan different from a title loan?

A title loan is a short-term, high-cost type of loan, with a single scheduled payment. The entire balance of a title loan is typically due in about 30 days, and there’s a high risk of repossession if a payment is missed. An auto equity loan is structured as a personal loan, with longer terms and fixed payments, and is priced more like traditional credit.

How much can I borrow against my car’s equity?

The equity in your car is its current market value minus any amount you still owe on it, but lenders have their own rules when it comes to maximum borrowing amounts.

What credit score do I need for an auto equity loan?

There is not a universal credit scoring requirement, and credit standards vary by lender. Some lenders also weigh factors like education and employment history, so a lower credit score or thin credit file isn’t necessarily a disqualifying factor.

Is an auto equity loan the same as an auto-secured personal loan?

Not exactly. An auto equity loan is a loan secured by the equity in your vehicle. The auto-secured personal loan option through Upstart is a vehicle-secured personal loan for a vehicle you own outright. Both are different from title loans.

What happens if I can’t repay an auto equity loan?

Because the loan is secured by your vehicle, the lender can potentially repossess the vehicle if you can’t pay it back. However, standard installment loan collection processes apply, and some lenders may offer hardship options that can help avoid repossession.

How do I find out how much equity I have in my car?

Look up your vehicle’s current market value, then subtract your remaining loan balance. Lenders may use different valuation sources, so this is only an approximation. A lender will determine your equity themselves during the underwriting process.

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