Ever wondered what the difference is between secured car loans and personal unsecured car loans and how that difference affects your finance and the car loan payments. The car loans terms can be only minor, but is superior when the true cost of each is taken into account.
Understanding secured and unsecured car loans in detail can be useful in saving money but, let's first have a look at the a range of workings that determine the cost of your loan and of your monthly repayments. The cost of the car finance package is the total you repay less the amount borrowed. Hence, let's say you are repaying $20,000 at 12% interest rate over 36 months; you will repay at the rate of $664.29 per month. That would total a repayment of $23,914.44, and the cost of the loan would be $3,914.44 plus any set-up or administration fees. A car finance calculator will helps you calculate car finance online.
An another to a car loan package would be car hire purchase (HP), where you hire the car over the repayment period and take delivery of the ownership papers to the motor car with your final payment. Until then the car belongs to the HP company.
However, most credits are either secured or unsecured, and not all lenders offer unsecured car loans so let's look at car loans that are secured first. A secured car loan is one whereby the lender offers the loan with the car as security. If you fail to make payments, the lender can sell the car to recoup their money. With a strong application it is still possible to get secured car finance on older motor vehicles, often 7 years, but the finance term could be shorter than 5 years or not at all by using your home or some other form of security. These however are not strictly classed as car loans. It is generally the car that is the security.
Secured car loans can include on-road expenses such as the registration, loan protection insurance for disability,death or unemployment and comprehensive auto insurance as part of the financing deal. Loan insurance makes sure that the loan is paid off in the event of your death during the loan period, and car insurance is needed to make sure that the car is in good condition should it be needed to repay the loan in the event of you having your car repossessed.
This might look hard , but these are standard conditions for any secured loan, not only car loans. You can normally have a secured car loan over one to five years, and the interest rate will be lower than that for an unsecured car loan where the lender charges extra to compensate for their added risk. As with any loan, a deposit will result in lower payments, or a shorter term, whichever you prefer.
Balloon payments could be an option on your car finance package, which is like a deposit in reverse, payable at the end of the period. This is popular by those whose income will increase over the period, and they will be in a better financial position to pay a lump sum in 3 - 5 years time. This too results in either a lower monthly repayment or a shorter repayment term.
If you are looking to purchase a used car, your car finance interest rates can be priced very differently according to the finance company and the age of your car. Many will charge higher car finance interest rates, and the current credit down turn has changed the outlook of many lenders to unsecured car loans in particular. Many no longer offer unsecured loans due to the increased risk in the current economic climate.
However, they are still available, and some finance brokers can ensure you get the best unsecured car loan available. In addition to the interest rate on such loans, you should also compare the fees charged, since they can involve a considerable outlay for you before you get the loan.
The major differences between secured and personal car loans, therefore, can be summed up as:
Secured loans are cheaper to repay, with generally lower interest rates.
You need to have full comprehensive car insurance with all secured car loans, while unsecured loans do not.
Both loans could require life insurance cover for the loan, but secured loans are more likely to.
You can sometimes include insurance, registration and other costs in the secured loan, but not with an unsecured car loan.
Fees for unsecured auto loans can be considerably higher than for secured loans.
Not all lenders will offer unsecured auto loans.There few doubts that if your car is young enough to be given a loan with the car as security, then that should be your option. You might be able to arrange a secured loan for an older car with your home as security, but you will have to make sure that maintain the repayments since lenders are becoming unsympathetic in the current economic climate.
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