When you compare car loans, you will find both secured car loans and unsecured car loans. As with any other loan type, each has its own pros and cons. To make an informed decision, you need to understand the differences between them. In this article, let’s delve into the advantages and disadvantages of secured and unsecured car loans.
Secured Car Loans
If a loan is secured, it means that you provide some sort of collateral for the loan. If you fail to repay it, the lender has the option to recover the money by selling that collateral. A home mortgage is probably the biggest secured loan that you will have but the concept also applies to car loans.
A secured car loan is similar to a mortgage but the amount is much lower. With this type of loan, the lender will register its interest in your vehicle on the Personal Property Security Register until you have paid off the loan. Of course, if you fail to repay in full, the lender can sell the vehicle to recover the money that you owe. These loans usually comes with a fixed interest rate, resulting in consistent monthly repayments.
A secured car loan also typically has a lower interest rate than an unsecured loan. So if you’re buying a new car, consider getting a secured car loan as it is cost-effective and you may get a better interest rate. Bear in mind, however, that this does not mean that getting a secured car loan is automatically the best way to go.
Unsecured Car Loans
With this type of car loan, the lender does not have a claim against the car to recover the money you owe if you fail to complete the repayments. This gives you a lot more flexibility in what vehicle you buy because the lender isn’t relying on the car to secure the loan. You can buy an older car which is usually less expensive, and borrow a smaller amount. In the long run, getting an unsecured car loan may be a better option since you’ll be able to pay back the loan sooner. However, since there’s no collateral, it usually has a higher interest rate.
When deciding which car loan to get, make sure to weigh the benefits and drawbacks of each type and see which better suits your needs and financial capacity. As for the repayments, you can use a car loan calculator to give you an idea of the amount of money that you need to shell out every month.
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