Secured car loans and personal loans
Car loans are loans issued especially for the purchase of a car or other vehicle. Unlike a personal loan, a car loan cannot be used for anything else. If you’re someone who knows nothing about car loans, it is a good idea to familiarise yourself with the different types of car loans and car financing options out there.
The first step when shopping for car loans, is deciding whether you need a car loan (also called a secured car loan) or a personal loan. Choosing between these car financing options depends on your ability to make repayments in the future. A secured loan is contingent on some type of security or collateral – in the case of car loans, the collateral is the car itself. If you are unable to make payments, the lender can claim possession of your car.
The benefits of secured car loans include a lower interest rate, and flexible loan options. Because the lender has security over your car right until your final payment, secured car loans usually allow a greater amount to be borrowed, as well as low or no account keeping fees, and a fixed interest rate.
A personal loan, on the other hand, takes into account your personal finances – including credit history, income and credit score – before your loan can be approved. If you have a steady/high income and can pay off the loan quickly, personal loans are the preferable option over secured car loans. Most dealerships will give you this type of car financing if you can prove you have steady employment. Your salary will also determine how high a loan you can be approved for.
Personal loans are more risky for the lender, and therefore these car loans usually attract a higher interest rate than secured car loans. Defaulting on an unsecured loan will also highly impact your credit rating. However for the right applicant, the application process for unsecured car loans is typically far easier than for secured car loans, as there is less need to provide exhaustive documentation of the asset or collateral.
When shopping for car loans, it’s also important to run through the terms and conditions set by each lender to make sure you don’t get tricked out of money. Things to think about are the mode of repayment, monthly instalments and charges for pre-enclosure of the car loan. Also keep in mind your credit history, as bad credit history can make car loan applications more timely and difficult. Obtaining online quotes for car loans is a good place to start, however when you have narrowed down your selections, it is advisable to have a chat with a representative from the institution offering your chosen car loans.
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