What is the real difference in cost and conditions between car loans that are secured or a unsecured personal loan 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.
Before we get into the nuts and bolts of car loans packages , let’s first have a look at the various machinery 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 sum 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 loan repayment calculator will helps you get car loan payments for free online.
An choice to a car loans would be car hire purchase (HP), where you hire the car over the repayment period and receive the title 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 car loans that are unsecured so let’s look at secured car finance 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 old cars, 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 car lending. normally the car is used as security over the loan.
Secured car loans can include on-road expenses such as the registration, loan insurance 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 comprehensive 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 defaulting on your loan commitment.
This might all sound like doom and gloom, 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.
Some car loans can come with an option to have a balloon payment, which is an amount borrowed where you pay interest only and finalised the principle when finalising the loan. 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 cheaper repayment per monthor a shorter repayment term.
If you are on the lookout for a used car, your finance package will be priced differently according to the car finance company and the age of your car. Many will charge higher car loan interest rates, and the current credit squeeze 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 online 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 unsecured car loans, therefore, can be summed up as:
Secured finance 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.