What is Car Equity?
Yendo
June 3, 2024
Vehicle Equity Explained: Access Your Car's Value
Your car might be worth more than you realize - not just as transportation, but as a financial tool. The equity you've built up in your vehicle can be converted into cash or credit when you need it.
Vehicle equity is simply the difference between what your car is worth and what you still owe on it. This guide covers how to calculate your equity, the different ways to access it, and what to watch out for before putting your car on the line.
What is Vehicle Equity
Vehicle equity is the difference between your car's current market value and the amount you still owe on it. If your car is worth $15,000 and you owe $5,000 on your loan, you have $10,000 in equity. This equity represents the portion of your car that you actually own outright, and it can be converted into usable funds through auto equity loans, cash-out refinancing, or vehicle equity credit cards.
Think of equity as your financial stake in the vehicle. The more you've paid down your loan - or the more your car has held its value - the larger that stake becomes.
- Market value: What your car would sell for today based on its condition, mileage, and demand
- Loan balance: The remaining amount you owe to your lender
- Equity: The difference between the two figures above
How to Calculate Car Equity
The formula is straightforward: take your car's current market value and subtract your remaining loan balance. Free online tools like Kelley Blue Book, Edmunds, and NADAguides can help you estimate what your car is worth right now.
Here's how the math works in practice. Say your car is valued at $15,000 and you owe $5,000 - you have $10,000 in positive equity. On the other hand, if your car is valued at $15,000 but you owe $18,000, you're $3,000 in negative equity.
How Car Loan Equity Works
Your equity position changes constantly because two forces are working against each other. Every payment you make reduces your loan balance, which increases your equity until you pay off your car completely. At the same time, your car loses value through depreciation, which decreases your equity.
Early in a loan term, depreciation often outpaces your payments - new cars lose about 30% over the first 2 years. As the loan matures, this dynamic typically reverses, and your equity grows more steadily.
Positive Equity
Positive equity means your car is worth more than what you owe on it. This is a favorable position because it means you have built up real value in your vehicle - value you can potentially access if you choose to.
You can reach positive equity faster by making a larger down payment when you buy, choosing a shorter loan term, or making extra payments toward your principal.
Negative Equity
Negative equity - sometimes called being "underwater" or "upside-down" - occurs when you owe more than your car is worth. This situation is common in the first few years of ownership (29.3% of trade-ins had negative equity in Q4 2025) because new cars depreciate quickly, often faster than loan payments reduce the balance.
If you find yourself underwater, continuing to make regular payments will eventually bring you back to positive territory. Selling or trading in a car while underwater typically means paying the difference out of pocket.
Ways to Access Vehicle Equity
Several financial products let you tap into your car's equity. Each one works differently and fits different situations.
Auto Equity Loan
An auto equity loan gives you a lump sum of cash using your car as collateral. The loan comes with a fixed interest rate and a set repayment schedule, so your monthly payment stays the same throughout the term.
This option works well when you have a specific expense in mind, like consolidating high-interest debt or covering a large repair bill.
Cash-Out Auto Refinancing
Cash-out refinancing replaces your current auto loan with a new, larger one. The new loan pays off your existing balance, and you receive the difference as cash. From that point forward, you make payments on the single new loan.
This approach can be especially attractive if interest rates have dropped since you took out your original loan - refinancing borrowers saved just over 2% on their rates in Q2 2025.
Vehicle Equity Credit Card
A vehicle equity credit card uses your car's value to help determine your credit limit while functioning like a secured credit card for everyday purchases. Unlike a loan, you don't receive a lump sum - instead, you get ongoing access to a revolving credit line.
Yendo offers this type of product, providing a Mastercard that works anywhere Mastercard is accepted. Check your rate with no impact to your credit score.
Auto Equity Loan vs Title Loan
Auto equity loans and title loans are often confused, but they differ significantly in cost, structure, and risk.
Title loans are designed as short-term emergency financing and carry extremely high costs. Auto equity loans offer more reasonable rates and structured repayment periods that make them easier to manage over time.
Pros and Cons of Vehicle Equity Loans
Like any financial product, vehicle equity loans come with trade-offs worth considering before you commit.
Pros of Car Equity Loans
- Lower rates than unsecured debt: Because your car secures the loan as collateral, lenders face less risk and can offer more competitive interest rates
- Accessible with varying credit: The vehicle's value plays a significant role in approval, which can help if your credit history is limited
- You keep driving your car: The vehicle stays in your possession throughout the repayment period
- Potentially larger loan amounts: Your built-up equity may qualify you for more than an unsecured loan would
Cons of Car Equity Loans
- Repossession risk: Failing to repay the loan gives the lender the right to take your vehicle
- Borrowing against a depreciating asset: Your car loses value over time while you pay interest on the loan
- Possible fees: Origination, title, or processing fees can add to the total cost
- Additional monthly payment: Taking on new debt affects your budget and overall financial flexibility
Factors to Consider Before Getting an Equity Loan for Your Car
Before signing any loan agreement, take time to evaluate how the loan fits your financial picture.
Interest Rates and APR
Compare the Annual Percentage Rate, or APR, from different lenders rather than just the interest rate. The APR includes both interest and fees, giving you a clearer picture of the true cost of borrowing.
Loan Terms and Repayment Schedule
Longer terms mean lower monthly payments but more interest paid over the life of the loan. Shorter terms increase your monthly payment but reduce total interest costs. The right balance depends on your budget and how quickly you want to be debt-free.
Vehicle Depreciation
Your car continues losing value while you repay the loan. Borrowing too close to your total equity could put you underwater if the car depreciates faster than expected.
Your Current Financial Situation
Consider whether the new monthly payment fits comfortably within your budget. Adding debt that strains your finances can create problems down the road, even if the loan terms seem favorable.
How to Get Equity Out of Your Car
If you've decided to move forward, here's how the process typically works.
1. Determine Your Car's Market Value
Use online valuation tools like Kelley Blue Book or Edmunds to estimate what your car is worth today. Be accurate about the condition, mileage, and features to get a realistic number.
2. Check Your Remaining Loan Balance
Contact your lender and ask for the payoff amount. This figure may differ slightly from your latest statement because it includes interest that has accrued since your last payment.
3. Calculate Your Available Equity
Subtract the payoff amount from your car's estimated value. The result tells you roughly how much equity you have to work with.
4. Compare Vehicle Equity Loan Options
Shop around with multiple lenders—online lenders, credit unions, and banks often have different rates and terms. Comparing offers helps you find the best fit for your situation.
5. Apply for Your Chosen Product
Once you've selected a lender, complete the application. You'll typically provide proof of income, vehicle registration, your driver's license, and information about your car's title. Some products, like Yendo's credit card, offer quick pre-approval without affecting your credit score.
Alternatives to an Automobile Equity Loan
Using your car as collateral isn't the only option. A few alternatives are worth exploring.
Unsecured Personal Loans
Unsecured personal loans don't require collateral, which means your car isn't at risk. However, because the lender takes on more risk, interest rates tend to be higher and credit requirements stricter.
Home Equity Loan or HELOC
If you own a home with equity, a home equity loan or home equity line of credit may offer larger amounts at lower rates. Keep in mind that your home becomes collateral, which carries its own risks.
Vehicle Equity Credit Card from Yendo
Yendo's vehicle equity credit card provides ongoing access to credit rather than a one-time lump sum. The card uses your car's equity to help determine your credit limit while working like a regular Mastercard for everyday purchases. Get started with a quick pre-approval decision that won't affect your credit score.
FAQs about Vehicle Equity Loans
Can you get a car equity loan with bad credit?
Generally, yes. Because the loan is secured by your vehicle, lenders often weigh the car's value heavily in their decision. This makes vehicle equity products more accessible to borrowers with limited or challenged credit histories.
How long does it take to receive funds from an auto equity loan?
Funding timelines vary by lender but typically range from the same day to a few business days after approval. The speed depends on the lender's process and how quickly you can provide the required documents.
Does applying for a vehicle equity loan affect your credit score?
Most lenders perform a hard credit inquiry when you formally apply, which may temporarily lower your score by a few points. However, some products - like Yendo's credit card - offer pre-approval decisions with only a soft inquiry that doesn't affect your credit.
What happens if you default on a loan secured by car equity?
If you fail to make payments as agreed, the lender generally has the legal right to repossess your vehicle and sell it to recover the debt. Borrowing only what you can comfortably afford to repay helps avoid this outcome.
Can you get a vehicle equity loan if your car is leased?
Generally, no. Because the leasing company holds the title, you don't own the vehicle and therefore have no equity to access. So you usually cannot get one, though, it's worth researching to confirm.
Disclaimer: Yendo is not a provider of financial advice. The material presented on this page constitutes general consumer information and should not be regarded as legal, financial, or regulatory guidance. While this content may contain references to third-party resources or materials, Yendo does not guarantee the accuracy or endorse these external sources.