Car equity loans in Canada

How equity in a vehicle works

Your equity is the vehicle value minus what you still owe. A car worth 20,000 dollars with a 12,000 dollar balance has 8,000 dollars of equity, and that equity is what a lender can safely lend against.

Refinance versus title loan

• A refinance is a normal auto loan with an amortized term and a rate in the single or low double digits.
• A title loan is usually a short term, high cost loan that can run triple digit effective annual rates.
• Title lenders may hold your ownership documents, which creates real risk if you fall behind.
• Regulated auto lenders report to credit bureaus, which can help your profile when paid on time.

Using equity sensibly

Taking equity out of a vehicle lengthens the time you are in debt on it. Use it for something that holds value or reduces a more expensive debt, not to fund a purchase that depreciates immediately.

Who qualifies to refinance

Most Canadian drivers with an active auto loan qualify. The vehicle, the remaining balance and your payment history matter more than a perfect credit score.

• The vehicle is registered, insured and roadworthy, with no active insurance claim against it.
• The loan is an auto loan or a dealer-arranged finance contract, not a lease.
• You have made at least a few months of payments on the current loan.
• The vehicle is not already pledged as security on a separate title or payday loan.
• You live outside Quebec, where our lending partners do not currently operate.

What to watch for before you sign

A lower payment is not automatically a lower cost. Check these four things before you agree to new terms.

• The full cost of borrowing, not just the monthly payment: a longer term can lower the payment and raise the total interest.
• Payout penalties on your current loan, such as an early payoff fee or a discharge administration charge.
• Lender fees rolled into the new balance, which quietly increase what you owe.
• The vehicle value against your balance. If you owe far more than the car is worth, refinancing may not be approved without extra down payment.