Secured or Unsecured Car Loans

Ever wondered what the difference is between secured car loans and personal unsecured car loans and how that difference affects their finance and their repayments. Basically the difference is small in terms of the car loan details themselves, but is larger when the true cost of each is taken into account.

Car Loan Calculations

Before discussing secured and unsecured car loans in more detail, let’s first have a look at the various apparatus that ascertain the cost of your finance and of your monthly repayments. The cost of the car finance package is the total you repay less the loan amount borrowed. Hence, let’s say you are repaying $20,000 at 12% interest rate over 36 months; you will pay back 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 loan calculator will make it simple to calculate all these figures online.

A substitute to a car loan package would be car hire purchase (HP), where you hire the car over the repayment period and obtain the ownership papers to the vehicle with your final payment. Until then the vehicle belongs to the HP company.

Car Loan Companies

However, most loans are either secured or unsecured, and not every car loan company offers car loans that are unsecured so let’s look at car loans that are secured first. Secured car loans 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 are not exactly classed as car financing. It is generally the car that is the security.

Car Finance Choices

If you prefer you can request no deposit car finance and have all on-road costs added to the amount financed. Options like registration , loan insurance and comprehensive vehicle 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 required to make sure that the vehicle is in good requirement should it be needed to repay the loan in the event of you having your car repossessed.

This might all sound like doom and gloom, but these are conditions you see with most secured car loans, not only car loans. You can normally have a secured car loan over one to five years, and the interest rate will be lesser than that for an unsecured car loan 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.

You could also apply a balloon, which is an amount borrowed where you pay interest only and finalized the principle when finalizing the loan. This is well-liked by those whose income will expand over the period, and they will be in a better financial standpoint to pay a lump sum in 3 – 5 years time. This too results in either a lower monthly repayment or a shorter repayment period.

Car Loan Interest Rates

If you are looking to purchase a used car, your car loans intererst rates can be priced very differently according to the finance company and the age of your car. Many will charge higher car loans interest rates, and the current credit problem has changed the outlook of various lenders to unsecured car loans in particular. Many no longer offer unsecured car loans due to the increased risk in the current economic climate.

However, they are still accessible, and some loan brokers can deal with a variety of unsecured car loans companies. In addition to the car loans interest rates, you should also compare the fees charged, since they can involve a substantial outlay for you before you get the loan.

The key differences between secured and unsecured car finance, therefore, can be summed up as:

Secured loans are cheaper to repay, with in general lower rates.

Comprehensive car insurance must always be current on the car while under secured car finance, while unsecured financing will not.

Both loans could require life insurance cover for the finance, but secured loans from banks are more likely to.

You can sometimes include comprehensive insurance, registration and other expenses in the secured loan, but with an unsecured car loan you must include the the costs on top of the amount borrowed.

Fees for unsecured auto loans can be very much higher than for secured car loans.

Not all finance companies will recommend unsecured car finance.

There few doubts that if your automobile is young enough to be given a loan with the motor vehicle as security, then that should be your option. You might be able to arrange a secured loan for an older vehicle 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 climate.