Cheap Car Loan

An alternative to a car loan would be car hire purchase (HP), where you hire the car over the repayment period and receive the title 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 lenders 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 is possible to get a secured car loan if the car is over a certain age, often 7 years, but you may find the loan term only being approved on a shorter term or not at all by using your home or some other form of security. These however are not strictly classed as car loans. It is generally the car that is the security.

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 payments.

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.

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 on a car loan or a shorter repayment term.

If you are buying a used car, your loan will be priced differently according to the lender and the age of your car. Many will charge higher 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 car finance brokers can put you in touch with a choice of lenders that are still willing to offer you an unsecured car loan. In addition to the interest rate on car 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 loans are cheaper to repay, with generally lower interest rates.

Secured loans demand fully comprehensive car insurance, 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 with an unsecured car loan you must include the the costs on top of the amount borrowed.

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 to maintain the repayments since lenders are becoming unsympathetic in the current economic climate.