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. Basically the difference is small in terms of the car loan details themselves, but is bigger 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 finance calculator will enable you to work this out for yourself.
An another to a car loans would be car hire purchase (HP), where you hire the car over the repayment period and get the title to the vehicle with your final payment. Until then the car belongs to the HP company.
However, most finances are either secured or unsecured, and not all finance companies offer unsecured or personal loans so let’s look at secured car finance 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. It is possible to get a secured car loan on older motor vehicles, often 7 years, but the car finance term or loan term may be requested to be shorter than the standard 5 yearsor not at all by using your home or some other form of security. These however are not strictly classed as a car loan. normally the car is used as security over the loan.
If you prefer you can request no deposit car finance and have all on-road costs added to the amount financed. Options like registration , insurance to protect you against disability,death or unemploymentand comprehensive auto insurance as part of the financing deal. Loan protection insurance makes sure that the loan is paid off in the event of your death during the loan period, and car insuranceis needed to make sure that the car is in good condition should it be needed to repay the finance in the event of you defaulting on your payments.
This might all sound like doom and gloom, but these are conditions you see with most secured car loans, not only car loans. Secured car loans terms are from 1-7years, and the interest rate will be lower than that for an unsecured car finance where the loan company 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 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 purchasing a used car, your car finance interest rates can be priced very differentlyaccording to the finance company and the age of your car. Many will charge higher loan rates, and the current credit problem has changed the outlook of many lenders to unsecured car loans in particular. Many no longer offer unsecured car finance due to the increased risk in the current economic climate.
However, they are still available, and some car loan brokers can ensure you get the best unsecured car loan available. In addition to the car loans interest rates, you should also evaluate the fees charged, since they can involve a considerable outlay for you before you get the loan.
The most important differences between secured and unsecured auto loans, therefore, can be summarized as:
Secured car finance are cheaper to repay, with usually lower rates.
Car loans that are secured must have full comprehensive car insurnance, while unsecured financing does not.
Both loans could require deathinsurance cover for the finance, but secured car finance packages are more likely to.
You can sometimes include insurance, registration and other expenses in the secured loan, but with an unsecured car financing you must include the the expenses on top of the amount borrowed.
Fees for unsecured car finance can be very much higher than for secured car finance.
Not all loan companies will offer unsecured auto loans.
There few doubts that if your vehicle is young enough to be given a loan with the car as colateral, then that should be your option. You might be able to arrange a secured loan for an older automobile with your house as security, but you will have to make sure to maintain the payments since lenders are becoming unsympathetic in the current economic crissis.
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