Jul
18
Secured Or Unsecured Vehicle Loans
Ever wondered what the difference is between secured car loans and personal unsecured car loans and how that difference affects your loanand your loan payments. Basically the difference is small in terms of the car loan details themselves, but is superior 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 many machinery that determine the cost of your loan and of your monthly repayments. The cost of a loan 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 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 loan calculator will assists in calculating these figures to calculate the real costs of car finance.
An alternative to a car loan package would be car hire purchase (HP), where you hire the car over the repayment period and be given the ownership papers to the vehicle with your final payment. Until then the car belongs to the HP company.
However, most loans are either secured or unsecured, and not all loan companies offer unsecured car loans so let’s consider secured loans 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 could be probable to get a secured car loan 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 are not exactly classed as a car loan. It is generally the car that is the security.
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 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 lend in the event of you defaulting on your payments.
This might all sound like doom and gloom, but these are standard conditions for any secured loan, not only car loans. You can get car loans secured for a period of one – seven years , 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. If you put deposit or trade amount off the finance this will lower the repayments, or a shorter term, whichever you prefer.
You could also apply a balloon, 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.
Car Finance Loans
If you are buying a used motor vehicle, your finance package will be priced differently according to the finance company and the age of your car. Many will charge higher interest rates, and the current credit down turn has changed the outlook of many lenders to unsecured car finance 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 assist in getting you a good low rate unsecured car loan. 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 major differences between secured and unsecured car loans, therefore, can be summarized as:
1. Secured car finance are cheaper to repay, with in general lower interest rates.
2. Secured loans demand fully comprehensive car insurance, while unsecured loans do not.
3. Both loans could require life insurance cover for the loan, but secured car loans are more likely to.
4. You can sometimes include comprehensive insurance, registration and other costs in the secured loan, but with an unsecured car financing you must include the the outlay on top of the amount borrowed.
5. Fees for unsecured loan package can be greatly higher than for secured loans.
6. Not all car loan lenders will offer unsecured motor loan.
There few doubts that if your vehicle 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 finance for an older vehicle with your dwelling as security, but you will have to make sure to maintain the repayments since lenders are becoming unsympathetic in the current economic climate.