September 20, 2018

Secured Car Loans vs Unsecured Car Loan

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.

Do you have other ideas on how to compare car loans? Share your tips in the comments section.

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What is a Business Car Loan?

A business car loan is designed to provide funds for individuals who use their vehicles for work or business. One great thing about this type of loan is that it comes with a lower interest rate than a personal car loan.

Here are some of the things that you need to know about business car loans:

Eligibility

A business car loan is not for every driver, so how can you be eligible for it? You must meet these requirements:

  • Do you use your car for work? As the name suggests, a business car loan is for you if you use your vehicle fully or partially for commercial purposes.
  • Talk to your employer. If your car is not used for your own business, you can talk to your employer who can provide enough documentation for you to get a loan. It’s essential to compare car loans from several lenders, and check their car loan rates to ensure that you’re getting the best deal.
  • The standard requirements of your lender. These will vary depending on your chosen lender. If you meet the requirements, you may be eligible for a business car loan, whether it’s a novated lease, finance lease or chattel mortgage.

If you’re curious about what your repayments would be, you can use a car loan repayment calculator. This online tool can give you an estimate based on the price of your chosen vehicle as well as the loan rate and term. Bear in mind, however, that it is used only as a reference. The actual figures will be determined once you apply for the loan.

Application

There are different types of business car loans, but generally speaking, you may want to consider these guidelines when applying for a car loan:

  • Look for a car loan online. Many of the best deals are offered by online lenders.
  • Have the the necessary documents available when you apply. Just like in any type of loan, there are several documents that you need to prepare when applying for a business car loan. If you’re employed, you may need to ask your employer to provide documentation about your employment.

The approval may take some time, depending on factors such as your current financial capacity and credit score.

Do you have other idea on how to compare car loans? Share your insights in the comments section.

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Understanding Different Types of Car Finance Options

There are a lot of financing options for you to consider when you plan on buying a car. In Australia, you can check out lenders like loans.com.au. Their websites have car loan calculators that can greatly help you work out your monthly repayment and customize the terms of payment. These are also great for when you compare car loans as well as the car loan rates as there are many different types of car finance options.

Here are several car finance options to consider:

Personal loans or car loans

This type of loan is a sum of money that a financial institution lends you to buy a car and payment is agreed upon usually on a monthly basis plus the interest which is calculated on an annual basis. The car title, generally, will serve as the collateral for the loan which means that failure to follow the payment terms will lead to repossession of the vehicle.

Personal loans can be secured or unsecured loans. Secured loans will require some of your assets as collateral for security purposes. With collateral, interest rates are lower, and lenders tend to be more flexible when lending more money. When you default your payments, the lender can use your collateral to cover for the amount of your loan. If the collateral is insufficient, you will be responsible for paying the difference. On the other hand, unsecured loans are not tied to any of your assets. This type of loan is typically more expensive, given that they have no collateral.

Finance Lease

This is where the financier or lender buys the car and leases it to the borrower. You can use the vehicle right away with minimal capital. You pay a fixed amount monthly and take full responsibility of the car. When the lease period ends, you can choose to refinance, return, or buy the car for the residual amount.

Novated Lease

This is an arrangement with the employee consumer, the employer, and the car financier. The employer’s role is to pay the financier the monthly obligations through the employees’ salary, meaning, the employees’ salary is reduced in exchange for the value of the vehicle. The operating costs of the vehicle is shouldered by the employee and, in case of employment termination, the employee takes full responsibility of the vehicle.

Chattel Mortgage

The financier lends money for the purchase of the car while holding a mortgage over the car, and this mortgage guarantees the payment of the loan. The ownership, however, is given to the borrower while still giving regular payments.

Do you have other ideas when it comes to car loan rate and how to compare car loans? Share your insights in the comments section.

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Balloon Payment Explained

Many opt to apply for a car loan to buy a car, and when you compare car loans to get the best deal, it is essential to weigh the pros and cons of several factors including the option to have a residual value or a balloon payment on the loan.  Should you select this option, how much should it be? Read on to know more about the balloon payment:

Also called a residual value, a balloon payment refers to the lump sum that is owed to the financial institute at the end of a car loan term, after making all the regular monthly repayments.  It enables you, as a borrower, to pay only a portion of the principal loan amount throughout the agreed term. Having a balloon payment lowers your monthly repayments in exchange for paying a lump sum when the loan term ends.

To illustrate: If you borrow $10,000 that will be paid for five years, and you agree to have a balloon payment of 10% ($1,000), you will make lower repayments on a monthly basis.  After five years, you will pay the lender $1,000.

Having a balloon payment for your car loan is optional, but should you wish to have this option, here are some tips to consider:

Compare car loans

The balloon payment will enable you to get the car that you want since it will reduce your monthly repayments. Take note, however, that in most cases, it can be a huge amount as it is based off a percentage of the purchase amount. Check the car loan rates so you can choose the right loan.

Know the interest involved

Taking out a balloon payment can mean a higher amount of interest payable throughout the loan term. This will also increase the amount of interest to be paid per repayment.  In other words, if you apply for a loan that comes with a balloon payment, a bigger portion of your outgoing cash flow can be tax deductible.

Make additional monthly repayments

Do you receive additional income such as bonuses? You can use these to add more repayments towards the residual value.

Upgrade your car

Having a balloon payment also enables you to keep your monthly repayments lower and update the amount of the balloon payment to the estimated value of the car when the loan term ends.  Some people trade their car in after making the balloon payment. Then they apply for a car loan for their next car with a balloon payment again.

Got other tips on balloon payment and how to compare car loans? Share your car loan comparison ideas in the comments section. 

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How to Get Pre-approved for a Car Loan

If you’re planning to buy a new car, you may have heard of the term pre-approved car loan. This setup offers a lot of benefits. First of all, you will have an idea of what you can afford. Since your financial capacity will be assessed beforehand, you will know how much you can borrow as well as your repayments and car loan rates. Also, it will give you the upper hand when choosing a car and negotiating a deal. By knowing how much you can afford, you can use this as leverage when it comes to discussing the sales price.

How to Get Pre-approved for a Car Loan

Shop around

When planning to make a major purchase through a loan, make sure to do your research. This holds true when buying a car. With so many brokers offering a wide range of services, it is best to compare car loans before signing anything. Check their car loan rates and other features so you can have the best deal.

Prepare all the necessary documents

Of course, you need to prove that you have the financial capacity to manage your repayments. Other documents are needed as proof of your identity.

Talk to your chosen broker

You can either call them or send your application online. They will assess if you’re eligible for a car loan and recommend the best options for you. They will then help you in setting up the pre-approval to the right lender.

Features of a Pre-approved Car Loan

Here are some of the features to consider when applying for a pre-approved car loan:

Fixed or variable interest rates

If you choose a fixed interest rate, your repayments will be the same every month throughout the duration of the loan. On the other hand, you can take advantage of the flexibility being offered by a car loan with variable interest rates.

Longer loan terms

Car loans with a fixed rate can have a maximum loan term of five years, but there are loan terms that can reach seven years, making repayments more manageable.

Several payment options

Lenders offer different payment options but in general, you can choose from weekly, fortnightly or monthly repayments, depending on what’s manageable for you. You can also use a car loan calculator to give you estimates of your repayments depending on the payment frequency.

Do you have other ideas on car loan comparison and car loan rates? Share your tips in the comments section.

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