Financial dictionary: Equity

Part of achieving financial success involves understanding financial jargon. Finance dictionaries, and even financial education, are not always readily available, so we are here to help! Each month, we’ll feature a different finance-related word and how it may apply to your personal financial goals and lifestyle.

Equity

Equity — when referring to loans — is how much you own of a piece of collateral, typically a car or a home. If your car’s value is $20,000 and you have a current loan on it with a balance of $10,000, your equity (how much you own of the car) amounts to $10,000.

Big deal, right? You still have the loan to pay off. The cool thing about equity is that you can use that money for other expenses. If you have $5,000 in credit card debt, you can take that out in your vehicle’s equity to pay off your credit cards. Your auto loan would then have a balance of $15,000 and your credit cards would be paid down to zero balances. The benefit of using equity is that interest rates on secured loans (tied to a piece of collateral) are often much lower than interest rates on unsecured loans, like credit cards.

This story is produced and presented by MSUFCU. Members of the editorial and news staff of the Lansing State Journal were not involved in the creation of this content.