Do you have a vehicle in your driveway? That asset could be worth thousands of dollars.
Vehicle equity is one of the least appreciated financial resources most borrowers have. A car you already own could open doors to quick, flexible loans — without needing to sell it first.
Yet…
Most vehicle owners have no clue how equity can work for them as borrowers.
Vehicle equity puts the borrower in the driver’s seat.
Let’s review…
What You’ll Learn
- What Is Vehicle Equity?
- How Do Vehicle Collateral Loans Work?
- Do You Have Usable Equity?
- Benefits of Using Your Vehicle as Collateral
- Vehicle Equity Tips For Borrowers
What Is Vehicle Equity?
Vehicle equity represents the difference between how much your car is worth vs how much you owe on it.
Let’s say your vehicle is worth $12,000, but you only have $4,000 left on your auto loan. That difference ($8,000) is your equity.
Plain and simple… Equity is the financial value you have built up in your vehicle.
This is important because…
Equity can be borrowed against. It’s why lenders even offer vehicle collateral loans. Those who use collateral loans on vehicles can easily access that equity to receive funds quickly.
Vehicle collateral loans use your car’s equity as security (collateral) for the loan. This means borrowers don’t have to qualify using traditional underwriting metrics like creditworthiness or proof of income — the vehicle does that work for you.
Understandable so far?
More than 80% of cars were financed when purchased in 2024. That means if you own a car, you probably got a loan to pay for it. You likely still owe money on it, and your vehicle very well could have equity.
Data says most Americans owe money on their cars. With U.S. auto debt hitting $1.53 trillion in Q3 2024 alone, knowing how much equity you have could not be more important.
How Do Vehicle Collateral Loans Work?
Simply.
Borrowers who want to use their vehicle as loan collateral will…
- Fill out an application with basic vehicle information
- Receive an offer based on their car’s current value
- Get funds quickly — if they accept the loan offer
- Continue making payments until the loan is repaid
- Keep the vehicle at all times
The lender’s name is placed on the vehicle title once the loan is accepted. They don’t take your car from you.
As you make payments, the lender releases portions of their lien on the title. Once the loan is repaid in full, they release their lien completely.
What’s great about vehicle collateral loans?
They’re fast. Cash is needed yesterday kind of fast.
The entire process can take just a few days at many lenders. Borrowers receive their money far quicker than any bank will offer.
Do You Have Usable Equity?
You might…
Certain borrowers have more equity available to them than others.
Here are some of the key factors that determine how much equity you can access through a vehicle collateral loan.
- Vehicle Value — How much is your vehicle worth?
- Loan Balance — How much money do you still owe?
- Vehicle Age — How old is your car? Newer cars loan for more.
- Mileage — Higher mileage means lower value. Pay attention to the odometer.
- Condition — Keep your car in good working condition. Damage hurts value.
If your car is worth $10,000 but you owe $8,000, that’s $2,000 in equity.
Remember how we said:
If your car is valued at $12,000 AND you owe $4,000… That leaves you with $8,000 in equity.
Don’t have any loans against your vehicle? Congratulations. That means 100% of your car’s value is usable equity.
Some Simple Math
Here’s the tricky part. Vehicle loans are typically offered at up to 70% of value. Not 100%.
Let’s use that same $10,000 car from above.
If you owed $3,000 on it, you’d have $7,000 in equity ($10,000 — $3,000 = $7,000). But…
You’d only qualify for a maximum loan of $7,000 x .7 = $4,900.
Loan term matters.
Average monthly payments for a 36-month loan are lower than those for 84-month terms. As a result, borrowers who take shorter loans have more equity ($7,783) than those who don’t (-$8,485).
The average American auto loan is $24,297. If you’re behind on payments or have not been able to pay off your last loan, your equity could be underwater. Always know where you stand.
Benefits of Using Your Vehicle as Collateral
Vehicle collateral loans come with some unique perks.
You Don’t Need Perfect Credit
Since your car is “backing your loan up”, lenders are less risky. Borrowers don’t need perfect credit to qualify.
Having bad credit has never limited who can access a vehicle collateral loan.
This widens the pool of borrowers who qualify drastically. Many who wouldn’t qualify for traditional bank loans can obtain funding through a vehicle loan.
It’s good news for borrowers with spotty credit histories.
You Keep Your Vehicle
Selling your car for cash is one way to free up equity. Borrowing against it doesn’t force you to turn in your keys.
Vehicle collateral loans don’t require you to give up your car.
You continue making your regular car payments. Your collateral loan payment is on top of that. It’s how you keep the car paid off and your loan repaid.
Get Money Quickly
Speed is another benefit of vehicle loans. Funding can take days, not weeks.
Imagine needing money tomorrow. A bank won’t be able to get you funded that fast.
Vehicle loans can, though. That speed makes all the difference when debt is due tomorrow.
Loans Are Based On Actual Value
Vehicle loans are determined by how much your vehicle is worth, not your credit score or annual income.
When you borrow against your house, you can only borrow so much.
It’s the exact same with vehicles. You won’t get a $15,000 loan on a car worth $10,000. Think of it as protection for the borrower.
Vehicle Equity Tips For Borrowers
Here are a few tips to help borrowers make the most of their vehicle equity.
When you start shopping around for lenders, keep these tips in mind.
First, know how much your vehicle is worth. Use online equity checking tools like KBB or CTM to get your car’s estimated value. Knowing this ahead of time can prevent issues when you apply.
Second, pay your auto loan off as quickly as possible. This may not apply if you don’t have an auto loan. But if you do, pay it off quicker than scheduled. Equity grows as you pay off your loan. Pay it off faster.
Third, care for your car. Keeping your car in good condition will help maintain or increase equity. High mileage takes a toll. Engine troubles or significant damage? All things that decrease value.
Fourth, compare lenders, lenders, and more lenders. Shop around. Don’t just accept the first vehicle collateral loan offer you receive. You’d never accept the first credit card offer that came your way, so why treat vehicle loans differently?
Last, borrow what you need. If you need $2,000 but qualify for $10,000, take the $2,000. Borrow only what you need and can afford.
Vehicle equity is an underutilized financial tool. It takes work to grow, but once you have it, you’re granted a new set of borrowing options.
Bringing It All Home
When you think “vehicle equity” what comes to mind?
If you’re like most Americans who owe money on their car, you probably didn’t realize you had equity at all.
Borrowers who fully own their vehicle outright are in the minority. Most car owners still owe money on their ride.
Vehicle equity could be the fastest path to quick funds without hurting your credit. Vehicle collateral loans allow borrowers to tap into that equity without selling their cars or relying on luck to get approved.
Using your vehicle’s equity might be the easiest thing you’ve done all week.
Your car may already be working for you.