Car Equity Glossary: Lien, Payoff, Title Loan and More
Plain meanings of the car equity terms US drivers meet: equity, lien, payoff amount, negative equity, title loan, repossession, APR and more.
Borrowing against a car comes with its own vocabulary, from lien and payoff to negative equity and grace period. This glossary gives each term a short, plain meaning and a link to the guide that covers it, grouped by topic and sorted A to Z. It explains words only and is not financial advice.
Equity and value
6 terms
Car equity
#What your car is worth minus what you still owe on it. It is an estimate, not cash in hand or a credit limit.
Loan-to-value (LTV)
#How much is borrowed against the car compared with the value a lender gives it. Each lender sets its own limits.
Negative equity
#When you owe more on the car than it is worth. Borrowing more against it is usually not possible, and selling may leave a balance to pay.
Owning outright
#Having no loan or lien on the car, so its full value counts as equity. The title shows no lienholder.
Payoff amount
#The exact amount needed to close your current auto loan on a given day. It can differ from the balance on your statement, so ask the lender for a payoff quote.
Vehicle value
#The amount a lender uses for your car, based on its own valuation method. Different sources can give different values for the same car.
Titles and liens
5 terms
Electronic title
#A title held as an electronic record by the state rather than on paper. Some states use it while a lien is open.
Lien
#A lender's legal claim on your car until the debt is repaid. It is usually recorded on the title.
Lien release
#The lender's confirmation that the debt is paid and its claim on the car has ended, so the title can be cleared. Paying the balance and getting the release can be separate steps.
Lienholder
#The lender named on the title as having a lien on the car.
Title
#The legal document that shows who owns the car and any lienholder. You usually need a clear title to sell the car without extra steps.
Loans and credit
9 terms
Cash-out refinance
#A new car loan for more than you owe, paying off the old loan and giving you the difference in cash. It increases the debt secured by the car.
Collateral
#Something of value that secures a debt, such as your car. The lender can take it if you don't repay under the agreement.
Credit limit
#The most you can borrow on a credit card or credit line at one time. On a vehicle equity card the issuer sets it, and it is not the same as your car's equity.
Refinancing
#Replacing your current car loan with a new one, often to change the rate or the term. It deals with existing debt rather than giving new credit.
Revolving credit
#Credit you can use, repay and use again up to a limit, like a credit card. Debt can continue for as long as a balance is carried.
Secured credit card
#A credit card backed by a cash security deposit. Unlike a vehicle equity card, it puts your deposit at risk rather than your car.
Secured loan
#A loan backed by collateral, such as your car. If you default, the lender can take the collateral under the loan terms.
Title loan
#A short-term loan secured by a car title, often with high costs. Check state law and the full cost in the disclosures before you sign.
Vehicle equity credit card
#A credit card secured by your car, so the car is collateral for the balance. You keep driving the car, but missed payments can put it at risk.
Costs and risks
8 terms
APR (annual percentage rate)
#The yearly cost of credit, including interest and certain fees, shown in the loan or card disclosures. Use it to compare offers of the same type.
CFPB
#The Consumer Financial Protection Bureau, the US federal agency that takes complaints about auto lenders and card issuers and publishes free guidance.
Default
#Failing to meet the terms of a loan or card agreement, such as missing payments. On secured credit it can lead to the lender taking the collateral.
Deficiency balance
#What you may still owe after a repossessed car is sold for less than the debt. State law sets how this works.
Grace period
#The time between the end of a card's billing cycle and the payment due date during which you may avoid interest on purchases, if the card offers one. A loan's due date works differently.
Hardship program
#A lender's or issuer's option for borrowers who have trouble paying, such as a changed payment plan. Ask before you miss a payment.
Prepayment penalty
#A fee some lenders charge if you repay a loan early. Check the loan agreement before you sign.
Repossession
#When a lender takes back a car after a default under the loan terms. State law sets the rules, including notices and what happens after the sale.
Frequently asked questions
What is car equity?
It's your car's value minus what you still owe on it. It is an estimate, and lenders use their own valuation methods.
What is a lien on a car?
It's a lender's legal claim on the car until the debt is repaid, usually recorded on the title.
What is negative equity?
Owing more on the car than it's worth. Selling the car may leave a balance to pay, and borrowing more against it is usually not possible.
Is a vehicle equity credit card the same as a title loan?
No. Both use the car as security, but a vehicle equity card is revolving credit and a title loan is usually a short-term loan with a fixed due date. Compare the disclosures for each.
Where can I get free help with an auto loan problem?
The CFPB takes complaints and publishes free guidance on auto loans and credit cards.
Can't find a term?
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Yendo Auto Card
The researched vehicle equity credit card example on this site.
Yendo Auto Card is a vehicle equity credit card, not a cash loan. Yendo is not available in DC, DE, HI, IA, MA, MD, ME, MN and VT. Confirm current product, vehicle and personal eligibility with the issuer. Missed obligations can put the vehicle at risk.