Auto Loans

Car equity loan could wreck your finances

1
chris-mueller/Getty Images
Written by
Tara Mello
  • /
  • 2 min read
  • /
  • 2 min read
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

Bankrate Logo

Why you can trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money.

Bankrate Logo

Editorial Integrity

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.

Bankrate Logo

How We Make Money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.

Bankrate Logo

Insurance Disclosure

This content is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate.com. HomeInsurance.com LLC services are only available in states were it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

Short-term loans tend to be worrisome because they usually are obtained through private companies and come with numerous restrictions, high interest rates and penalties if they’re not paid off as promised. Car-title loans are one of them.

If you own your car, it is possible to use it as collateral to get a loan. Most companies that offer car-title loans are betting big that you won’t pay off the loan on time. These companies advertise short-term loans with seemingly reasonable interest rates, though they’re higher than what a traditional lender would offer. If you don’t pay off the loan on time, it likely will be automatically rolled over into a new loan with a substantially higher interest rate — and sometimes a balloon payment.

Use our auto loan calculator to estimate the payments on your next new or used car.

Maybe you think you’ll be able to pay off this loan on time because your tax refund check is coming. The problem is, you can’t be sure when your tax refund will arrive, nor can you be 100 percent confident you’ll get the refund amount you are anticipating. Your tax refund can be less than what you expect for many reasons. For example, the IRS can use refund money to repay other bad debts you owe, such as student loans or child support. Or, your refund might be less than you thought it would be because of changes in the tax laws or an error on your return.

Even if you worked closely with a tax preparer and you’re confident you don’t have any offsets the IRS is going to attach to your refund, you can’t really be sure what amount you’ll get back until it hits your bank account.

If it isn’t what you expect, or it arrives later than you plan, you could be stuck with a car-title loan that is very costly to pay off. Even worse, you could end up being dogged by debt collectors or have your car repossessed if you can’t repay the car-title loan as promised.

The smart thing to do is to avoid a short-term loan using your car as collateral.

Thinking about a getting a loan that you plan to repay with your tax return? Check out 3 ways to expedite your tax refund and avoid signing up for tax refund loan products.

Find the best rates on auto loans today at Bankrate.com.

You may also like