How Luis Used His Car to Save $5,000 on Student Loans

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

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You might have heard of borrowing against home equity to pay off student loans. But could you use car equity in a similar way?

Luis Valdez-Jimenez, who has a JD and an MBA and works as a contract specialist, did just that. He even wrote about it for The Penny Hoarder. Valdez-Jimenez used his 2015 Chrysler to secure a $20,000 loan with a 2.49% APR – less than half the 6.50% APR of his student loans.

“Using an auto equity loan the way I did is a relatively brand-new idea,” Valdez-Jimenez told Student Loan Hero in an interview. But he thinks it’s a strategy worth exploring.

“You might be surprised at how easy it is to do and at the rates you’re offered,” added Valdez-Jimenez.

What is an auto equity loan?

Like other car loans, an auto equity loan is secured by your car. Your vehicle acts as the collateral a lender can use to recoup its money should you be unable to repay the loan.

In the case of an auto equity loan, you borrow against the value of the car you own. Your car equity follows this formula:

  • Current value of the car – (minus) the amount of any debt = your car equity

So, if you own a paid-off car worth $15,000, you have $15,000 in equity. If you owe $5,000 on the same car, you have $10,000 in equity.

Can an auto equity loan help you refinance student loans?

Refinancing your student loans with an auto equity loan may help you get lower interest rates.

“The main reason why student loans tend to be higher is there’s no collateral – it’s an unsecured loan rather than a secured loan,” Valdez-Jimenez explained.

While you might get value from your debt through your education, a degree isn’t something a lender can repossess.

“But with an auto equity loan, there is collateral,” said Valdez-Jimenez: your car. This collateral lowers a lender’s risk, so auto equity loans might offer lower interest rates than student loans do.

“That’s a double-edged sword,” Valdez-Jimenez said. “You could get lower interest rates. If you struggle with making your payments or fall behind, your car is at risk.”

The right way to use an auto equity loan

But is an auto equity loan worth borrowing?

Well, that depends on whether you can get a good enough deal that refinancing makes sense, according to Valdez-Jimenez.

“I would recommend an auto equity loan if you have some equity in your car, you have good credit, and you’re getting good rates from a reputable institution,” Valdez-Jimenez added.

If you meet those guidelines, it could be worthwhile to look into this option. Here’s what you should consider as you explore the possibility of using an auto equity loan to refinance debt.

1. Find out how much car equity you have

A prerequisite of using an auto equity loan is owning a car with enough value to act as collateral. That fact alone will keep many people from using this strategy, Valdez-Jimenez pointed out.

“I realize a lot of younger people might not be able to utilize it because they don’t have the equity,” Valdez-Jimenez said.

However, some young people have cars that were gifted to them or that they purchased before getting serious about paying down debt. These vehicles can be leveraged to get better rates.

Even if you still owe money on your car, however, don’t assume this option isn’t a possibility for you.

“Some people might not realize they are driving a vehicle with significant equity in it,” Valdez-Jimenez said. “Even $5,000 can make a difference.”

You’ll get the best deals for a car that’s less than five years old. And many lenders won’t approve an auto equity loan for a car that’s more than 10 years old. Look up your make and model on appraisal sites like these to see what your equity is:

2. Shop for a trustworthy lender

Finding a lender that offers an auto equity loan can be tricky, as many major banks don’t offer this option. A local credit union or community bank might be a better bet to find auto equity loans – and the best rates.

“Make sure you go to an institution that’s highly reputable, preferably one that you have experience with,” Valdez-Jimenez advised. “There are plenty of sketchy-looking financial providers out there, so you need to really do your homework and find an institution you trust.”

He added a few more tips:

  • Avoid car title loans, which are easy to confuse with auto equity loans. “One of the key elements of a reputable financial institution is [it] won’t offer you ridiculous credit conditions – like having to pay it back in 30 days or [charging] high interest rates,” explained Valdez-Jimenez, all of which are common for car title loans. “Don’t go for a loan shark or quick cash shop.”
  • “Trust your gut and trust your feelings,” Valdez-Jimenez said. “Practice good judgment and know where to look.” If something feels off or you’re uneasy about a lender or your terms, pass on the offer.
  • “Be very clear and upfront about your goals,” Valdez-Jimenez added. If you know what you’re looking for and what you need in an auto equity loan, you’ll weed out options that aren’t a good fit more quickly.

3. Understand the trade-offs of an auto equity loan

There are, of course, potential drawbacks to refinancing student loans with an auto equity loan. Before you take this step, make sure you understand the potential risks to your finances; an uninformed decision can quickly turn to regret when something goes wrong.

You could lose your car

If you default on a car equity loan, the lender has the right to take your vehicle, which you likely need to commute to work and live your life.

Losing your car could put your job – and the income that comes with it – at risk. And if you lose your income, you could default on this debt. If you can’t live with that risk, have poor money management, or would have trouble keeping up with payments, an auto equity loan might not be right for you.

You’ll give up federal student loan protections

By refinancing federal student loans as a car equity loan, you’ll lose out on several protections and benefits federal student loans offer, including options to pause or adjust payments, such as:

Without these options, it will be harder to keep up with your new loan payments should a financial crisis arise, such as job loss or emergency expenses. Refinancing in this way will also make you ineligible for the Public Service Loan Forgiveness Program.

You might not get that great of a deal

Lastly, you’ll need to see how good the deal is before you decide if the savings will outweigh the potential trade-offs.

“If the new rate won’t be much better, it might not be worth losing the protections of federal student loans,” Valdez-Jimenez said, or putting your car on the line.

“Find out, based on your credit score and the equity you developed, what kind of rates you’re likely to get on an auto equity loan,” Valdez-Jimenez said. “And then you can compare those to the student loan rates you’re already paying.”

You can calculate the savings you could expect using our refinancing calculator.

Consider alternatives to an auto equity loan

If you want to leverage your car to help repay student loans or are interested in getting lower student loan rates, an auto equity loan isn’t your only option.

Sell your car

“Consider other options like selling your vehicle to get a cheaper one,” Valdez-Jimenez said. You also could bike, use public transit, or become a one-car household and then use the proceeds from the sale to pay off student debt.

Get a cash-out auto refinance

Another option that’s similar to an auto equity loan is a cash-out refinance auto loan. Some lenders will allow you to refinance an existing loan at a new, higher balance, paying out the difference between your old loan and new loan in cash.

For instance, if you owe $5,000 on a $15,000 car, you might be able to refinance to a new auto loan of $10,000. You would pay off the previous $5,000 and have $5,000 in cash.

Use your car for a side hustle

Maybe you can’t cash out on your car’s value to repay student loans. But you can use it to build a side hustle and rack up some income. Here are a few ideas to get you started:

Any extra money you earn from your side gigs can be used to pay down your student debt.

Student loan refinancing

Refinancing student loans with a private lender might also be a better option than getting an auto equity loan to pay off student debt. The best student loan refinancing lenders offer rates that rival or beat auto equity loan rates.

Think carefully before pursuing auto equity loans

Auto equity loans are still relatively new and largely untested.

“If you have good, steady employment, high credit, you’re good with money – it’s a good thing to at least consider,” Valdez-Jimenez said. The strategy Valdez-Jimenez utilized is an example of a smart way to leverage a car equity loan to your advantage.

Just remember: Even though this option is intriguing, it’s risky and won’t be right for everyone.

Interested in refinancing student loans?

Here are the top 8 lenders of 2020!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.20% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of December 13, 2019, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 12/13/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit, email us at, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR (with AutoPay) to 7.61% APR (without AutoPay). Variable rates currently from 2.31% APR (with AutoPay) to 7.61% (without AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.31% APR assumes current 1 month LIBOR rate of 2.31% plus 0.75% margin minus 0.25% for AutoPay. If approved for a loan, the fixed or variable interest rate offered will depend on your credit history and the term of the loan and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

3 Important Disclosures for Figure.

Figure Disclosures

Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.

4 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 1/1/2020. Variable interest rates may increase after consummation.

5 Important Disclosures for Laurel Road.

Laurel Road Disclosures

Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.


There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.


For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to for more information about refinancing ParentPlus loans.


Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).

Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.


The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.


The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.


After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.


This information is current as of November 8, 2019 and is subject to change.

6 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.

7 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.76% effective November 10, 2019.

8 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 12/019/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.

1.99% – 6.89%1Undergrad
& Graduate

Visit Earnest

2.31% – 7.36%2Undergrad
& Graduate

Visit SoFi

2.06% – 6.81%3Undergrad
& Graduate

Visit Figure

2.62% – 6.12%4Undergrad
& Graduate

Visit College Ave

1.99% – 6.65%5Undergrad
& Graduate

Visit Laurel Road

1.99% – 7.06%6Undergrad
& Graduate

Visit Splash

1.85% – 6.13%7Undergrad
& Graduate

Visit CommonBond

1.90% – 8.59%8Undergrad
& Graduate

Visit Lendkey

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Published in Student Loan Repayment, Student Loans