Car Loans 101: What You Should Know About the Different Types
When you begin the process of searching for car loans, this can be rather mentally taxing. Not only is it a huge financial step, but you might not really understand what you’re getting yourself into due to all the technical jargon. You can use this guide to better understand the offers that are out there, and ultimately make informed choices about the various offers for car loans.
Secured vs. Unsecured Car LoansFrom the most basic standpoint, car loans are either secured (backed by some sort of collateral) or unsecured. If you apply for a loan and the lender decides you’re eligible for a secured solution, they will ask that you place a lien on some sort of eligible asset. A lot of times, the asset is the car itself. Other times, it might be another vehicle owned by the borrower, their home, or other high-value belonging. The lien ensures that the debt can be repaid through the asset in question should the borrower ever default on the loan.
On the other hand, unsecured loans are not protected by any collateral; they are approved in good faith. Unsecured loans are more often given to those with higher credit ratings or favorable borrowing histories. If a borrower defaults on an unsecured loan, action is generally taken via legal means.
Short Term vs. Long Term Car Loans
When you apply for Car Loans Stratton, term lengths will likely be brought into question. You and the lender will ultimately decide whether the loan will be repaid over a short or long term. Short term loans are generally repaid in full within a period of 1-3 years. A short term loan’s only pitfalls are usually high payment amount requirements and increased interest.
Long term loans are those that can be repaid over a longer period of time; generally at least 4-5 years. The drawback of long term loans is that it takes a lot longer to get rid of them, but they do have their advantages. They usually carry lower payment requirements, and interest usually low.
Other Types of Car Loans
A common type of car loan that doesn’t exactly fall into the category of the secured/unsecured loan options is the title loan. This is a loan that is taken out against a car title by the owner in exchange for a certain amount of money from a lender. If the borrower defaults on the payments, the lender can repossess the vehicle in question to satisfy the debt.
Likewise, lease buyouts exist for those who prefer to lease. Lease buyout car loans are ideal for people who want to purchase a vehicle after their lease terms have ended, but don’t have the resources to purchase at the time of expiration.