Finding the car that you want isn’t always easy, and sometimes neither is the way to pay for it. Having a car loan is an option to consider, especially if you don’t want to rush all the purchasing process and just enjoy getting to choose the right car.
There are many types of car loans, and big banks or other financial institutions in the United States offer this type of loan. The auto loans market represents a share of around $600 billion in the United States only. The auto loans come in various shapes and sizes, so let’s have a look at different types of car loans, depending on your needs:
Secured auto loans
Most of the auto loans are secured. The reasons is that, as the name tells it, this auto loan implies having a collateral for the loan. The car will act as collateral for the money borrowed. That means that, if the client fails to repay all the money back, the lender can use the vehicle to regain the money borrowed.
Unsecured auto loans
Not having a collateral for the auto loan means higher risks for the lender. In this case, the car cannot be used by the company to regain its money. Higher interest rates may apply to this type of auto loans, precisely because there is no collateral.
In the debate short term vs long term car loans, the customers’ opinions are divided too. If you will choose a short-term loan, this means repaying the money in a shorter term, thus a higher monthly payment. The best part is that, at the end of the loan payment, you end up paying less overall, but mind that this is harder on your budget.
On the opposite, choosing for a long-term loan means you will have to deal with the idea that the lender will get more money from you at the end. This can be overlooked, though, when you think that the monthly cost will be lower that in the case of the short-term loan. This way, the burden will be smaller, and also you will have bigger chances of repaying the entire loan without worrying that the lender could use the car as collateral to regain the money.
Direct financing means the customers receive the loans directly from the banks, or other financial institutions like credit unions and online finance companies. This enables the client to already have the money approved or even in their account, so then go and shop according to their best interest and the dealer’s offers.
In this case, the car loan is arranged by the dealer. As a customer, you will focus solely on the car company you want to go to, and save time. But, on the other hand, the dealer may add to the interest rate offered by the lender, so the money paid back may be a higher sum than in the direct financing case.
New car loans
New car loans are longer than the loans for the preowned vehicles, as you will need generally more money to buy. But there are lower interest rates for the new car loans, because the lender can use a higher-value and better car to have the loan paid, in the event the client cannot fulfill his payment obligations.
Used car loans
Unlike the new cars loans, the new ones are cheaper. But usually both the dealer and the lender encourage you to buy cars that are two or three years old. That is because, for cars which are over five years old, you may find it difficult to qualify your vehicle as collateral. This leads to you applying for an unsecured loan, with higher interest rates.