What is Equity in a Car?

"Equity" is a word we hear with some regularity. It comes up when we talk about houses, about businesses, and about cars. The concept is not terribly complex, thankfully. We'll explain exactly what equity in a vehicle is in this article.

Equity in a Car

Equity in a car is, in short, (partial) ownership of the vehicle. When you purchase a new or used car, you take out a loan to buy the vehicle unless you buy it outright. Over time, as you pay off the loan, you are essentially buying more and more of the car until you own it entirely. The amount of money you have spent on a car, less any remaining loan payment to be made, is the amount of equity you have in your vehicle.

Why is Equity Important?

Equity matters because it helps you determine your overall financial position. If you have a certain amount of equity in a car, some savings, and maybe a portfolio or a 401k, then the sum of these assets is your net worth. Having equity in a car also allows you to sell the vehicle for some money, should you ever need it.

Strategies for Building Equity

If you want to build equity in a car effectively, then there are a few things to keep in mind. Buying a vehicle that you can actually afford is a great first step. If you fall behind on payments and your car is repossessed, then you don't get back any of the money you spent on it – make sure to avoid this outcome.

You should also sign up for a vehicle purchase financing package with as low of an interest rate as possible. Since interest is money that you pay on top of the amount you borrow to buy a car, minimizing interest payments is ideal. Money spent on interest just goes to the lender; money spent on the principle of your loan actually builds equity in a vehicle.

Build Equity in a Car 

Our whole team wants everyone in our community here in Dayton, OH, to be able to build equity, even if they have a low credit score. That's why we offer competitive financing packages. We have a wide inventory of new and used cars that fit everyone's tastes – and budget. We look forward to helping you purchase a car and build equity in it soon.