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.

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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

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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.

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How Car Loan Equity Works

Your equity position generally changes frequently because two forces are working against each other. Every payment you make reduces your loan balance, which increases your equity. At the same time, your car loses value through depreciation, which decreases your equity.

Early in a loan term, depreciation often outpaces your payments. As the loan matures, this dynamic typically reverses, and your equity grows more steadily.

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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.

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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 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.

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Ways to Access Vehicle Equity

Several financial products let you tap into your car's equity. Each one works differently and fits different situations.

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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.

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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.

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Vehicle Equity Credit Card

A vehicle equity credit card uses your car's value to help determine your credit limit while functioning like a regular 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 pre-approval offer with no impact to your credit score.

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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.

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Pros and Cons of Vehicle Equity Loans

Like any financial product, vehicle equity loans come with trade-offs worth considering before you commit.

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Pros of Car Equity Loans

• Accessible with varying credit: The vehicle's value plays a significant role in approval, which can help if your credit history is limited, generally
• You keep driving your car: The vehicle stays in your possession throughout the repayment period, generally
• Potentially larger loan amounts: Your built-up equity may qualify you for more than an unsecured loan would, depending on the lender

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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

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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.

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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.

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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.

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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.

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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.

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Alternatives to an Automobile Equity Loan

Using your car as collateral isn't the only option. A few alternatives are worth exploring.

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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.

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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.

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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, amongst other factors, 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.

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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.

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