When buying a new or used car many people use car loans to finance them. There are a number of finance options available, two of them being secured and unsecured car loans.
There are some significant differences between them which will be discussed here. Firstly, a secured car loan is like a secured personal loan. The money lender uses some security that can be taken or repossessed if the borrower is not able to repay the money borrowed. With secured car loans then this item of security will usually be the actual car the car loan is taken to pay for. The money lender might require that the collateral is your home instead. If this is the case then your home is at risk if you don’t repay as agreed. Clearly this is a huge risk. What makes these types of car loan appealing is that they are available with a lower rate of interest than with an unsecured loan. A further benefit of a secured car loan is that they are easier to obtain even if the borrower has a poor credit score or has been refused credit previously. Furthermore, with secured car loans the borrower can borrow more money than with an unsecured loan. This might mean that you can buy the car you really want rather than the car the financer will lend you the money for! The risk though is that if you miss even just one payment you will put your car or home at the risk of being repossessed. This is a last resort but one that financers of these types of car loans have to stick to.
An unsecured loan for car finance has its own pros and cons. Obviously the main benefit is that you will not lose your car or home if you do not repay the loan. You will of course have a black mark against your name and your credit score will suffer significantly. An unsecured loan will usually have a higher interest rate than secured car loans because the risk to the lender is clearly higher. The selection criteria are also stricter as people with low credit scores will probably be refused car credit. The amount you can borrow with unsecured car loans will also be less than secured loans. This might be the difference between owning the car you have always dreamed of and the car you can borrow enough money to buy!
When considering car loans, then secured and unsecured loans are certainly a good option. Make sure you consider each in merit, look at the advantages and disadvantages to each type. Remember that a secured loan means your car or other asset is at risk should you default but you can borrow more money at a lower rate. An unsecured car loan is risk free but may not be a low interest rate and the amount offered may not be enough to get the car you really want.