What is a car equity loan in Canada?

A car equity loan lets you borrow money using the equity in a vehicle you already own as collateral. Equity is the difference between the car's current market value and any outstanding loan balance. For example, if your car is worth $25,000 and you owe $10,000, you have $15,000 in equity. A lender may lend you a percentage of that equity (typically 50%–80%) secured against the vehicle. If you fail to repay, the lender can repossess your car.

How does a car equity loan differ from a car title loan?

The terms are often used interchangeably in Canada, but there is a distinction. A car equity loan typically refers to a loan that takes your equity into account — how much the car is worth minus what you owe — and lends against that net value. A car title loan (or auto title loan) uses your car's title as collateral regardless of whether you have an outstanding loan on it. Title loans often come from specialized high-cost lenders; equity loans can sometimes be obtained from mainstream lenders at better rates.

What are the interest rates on car equity loans in Canada?

Interest rates on car equity loans in Canada vary widely depending on the lender. Traditional banks and credit unions may offer rates of 7%–12% for secured auto loans to borrowers with good credit. Alternative and subprime lenders charge 18%–35%+ for borrowers with poor credit. Car title loan companies may charge even higher effective rates through fees. Always ask for the total cost of borrowing (including fees) in dollar terms before signing.

Can I get a car equity loan with bad credit in Canada?

Yes, but expect significantly higher interest rates. Many alternative lenders specifically market car equity and title loans to borrowers with poor credit who cannot access traditional lending. While these loans provide access to cash, the high cost can worsen financial stress. If you have any alternative options — a credit union personal loan, family help, a secured credit card to rebuild credit — exhaust those first before turning to high-cost auto equity lenders.

What happens if I can't repay a car equity loan?

If you default on a car equity loan, the lender can repossess your vehicle. They sell the car (typically at auction), apply the proceeds to the loan balance, and you remain liable for any shortfall (the deficiency balance). Losing your vehicle can have serious consequences for your ability to get to work. Only borrow against your car if you are confident in your ability to repay.

Car Equity Loans in Canada: How to Borrow Against Your Vehicle (2026)

A car equity loan lets you access cash using the value built up in your vehicle — without selling it. While it provides fast access to funds, especially for borrowers who cannot access traditional lending, the costs and risks are significant. Understanding how car equity loans work before you sign is essential.

What Is Car Equity?

Car equity is the portion of your vehicle’s current market value that you own free and clear:

Car Equity = Current Market Value − Outstanding Loan Balance

Example	Amount
Vehicle current value	$30,000
Remaining car loan balance	$12,000
Car equity	$18,000

If there is no outstanding loan (you own the car outright), your equity equals the car’s full market value.

How Car Equity Loans Work in Canada

Application: You apply to a lender, providing vehicle details (year, make, model, mileage, condition)
Vehicle valuation: The lender assesses the vehicle’s current market value (using Canadian Black Book or similar)
Loan offer: The lender offers a percentage of your equity — typically 50%–80%
Lien placed: The lender registers a lien against the vehicle through the provincial PPSA (Personal Property Security Act) registry
Funds disbursed: You receive the loan amount
Repayment: Monthly payments; the lien is released when the loan is fully repaid
Default: Lender repossesses the vehicle

You keep your car and continue driving it during the loan term — but the lender has a legal claim on it.

Who Offers Car Equity Loans in Canada?

Lender Type	Typical Rate	Credit Requirement	Availability
Credit unions	7%–12%	Moderate (600+)	Good
Banks (auto loan refinancing)	7%–11%	Good (680+)	Moderate
Online lenders (e.g., Canada Drives)	9%–19%	Fair (550+)	Wide
Auto title loan companies	25%–46%+	Poor/no credit	Wide but costly
Private lenders	Varies (often high)	Flexible	Limited

For borrowers with good credit, a credit union or bank refinance of your existing auto loan — potentially pulling out equity at a low rate — is the best option. For borrowers with poor credit, rates from alternative lenders are high, making this a costly form of borrowing.

Costs to Consider

Interest rate: The stated annual percentage rate (APR) can range from 7% to 46%+ depending on your credit and lender.

Origination or admin fees: Many lenders charge $200–$1,000 in setup fees.

Total cost of borrowing: Ontario’s Consumer Protection Act and equivalent provincial laws require lenders to disclose the total cost of credit including fees. Ask for this figure before signing.

Example — $10,000 loan at 25% interest over 2 years:

Monthly payment: ~$534
Total repaid: ~$12,816
Total interest cost: ~$2,816

At 40%, the same loan costs ~$5,000 in interest.

Comparing Car Equity Loans to Alternatives

Option	Typical Rate	Collateral	Credit Required
Car equity loan	7%–46%	Vehicle	Fair to good
Personal loan (unsecured)	9%–24%	None	Moderate
Credit union personal loan	7%–14%	None	Good
HELOC (if homeowner)	Prime +0.5% (~6%)	Home	Good
Credit card	19.99%–29.99%	None	Fair
Secured car loan (used car)	5%–10%	Vehicle	Moderate

If you are a homeowner with equity, a HELOC will almost always be cheaper than an auto equity loan. If you have decent credit, an unsecured personal loan from a credit union may be simpler and similarly priced without putting your car at risk.

Red Flags to Watch For

No credit check required — this is a signal of extremely high-cost lending
Rates quoted per month rather than annually — 5% per month = 60% annually
Very short repayment terms — creates risk of default if cash flow tightens
Balloon payments — you owe a large lump sum at the end
Rollover pressure — high-cost lenders encourage rolling the loan into a new one, compounding fees

Provincial Consumer Protection Rules

Canada’s provinces regulate consumer lending. Key protections:

Total cost of credit disclosure: Required in all provinces — lenders must tell you the dollar total of all interest and fees
Cooling-off period: Some provinces provide a short window to cancel a high-cost loan
Maximum rates: Ontario, BC, Manitoba, and other provinces have maximum interest rate caps for consumer loans — verify with your provincial consumer protection office

See our secured loans guide for more context on how collateral-based lending works.

Key Takeaways

A car equity loan borrows against the difference between your car’s value and any outstanding auto loan
Rates range from 7%–12% at credit unions to 40%+ at high-cost lenders
The lender registers a lien on the vehicle — default means repossession
Alternatives (personal loans, HELOCs, credit union loans) are typically cheaper if you qualify
Always ask for total cost of borrowing in dollar terms before signing any loan agreement