Cheap Car Loan

Many people are not sure of the difference between secured and unsecured car loans and how that difference affects their loan and their repayments. The difference can vary depending on the bank or finance company, but is larger when the true cost of each is taken into account.

Before discussing secured and unsecured car loans in more detail, let’s first have a look at the numerous apparatus 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 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 loan calculator will make it simple to calculate all these figures online.

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

However, most credits are either secured or unsecured, and not all financiers offer car loans that are unsecured so let’s look at car loans that are secured 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. With a strong application it is still possible to get secured car finance on old cars, often 7 years, but the finance term could be shorter than 5 yearsor not at all by using your home or some other form of security. These however are not strictly 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 unemploymentand comprehensive auto 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 comprehensive car insurance is needed to make sure that the car is in good condition should it be needed to repay the finance in the event of you defaulting on your loan commitment.

This might look hard , but these are conditions you see with most secured car loans, not only car loans. Secured car loans terms are from 1-7years, 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. 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 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 lower monthly repayment or a shorter repayment term.

If you are on the lookout for a used car, your loan will be priced differently according to the finance company and the age of your car. Many will charge higher loan rates, and the current credit squeeze has changed the outlook of many lenders to unsecured car finance in particular. Many no longer offer unsecured car loans due to the increased risk in the current economic climate.

However, they are still available, and some car finance brokers can assist in getting you a good low rate unsecured car loan. In addition to the car loan rates, you should also put side by side the fees charged, since they can involve a considerable 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 more affordable to repay, with in general lower rates.

Car loans that are secured must have full comprehensive car insurnance, while unsecured financing will not.

Both finance packages could require life insurance cover for the finance, but secured car finance packages 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 loan package can be greatly higher than for secured loans.

Not all car finance lenders will offer unsecured motor loan.

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