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Comparing Secured and Unsecured Car Loans

Ever wondered what the difference is between secured car loans and personal unsecured car loans and how that difference affects your loanand your repayments. Basically the difference is small in terms of the car loan details themselves, but is superior when the true cost of each is taken into account. It is easy to compare car loans quickly once you know how.

Calculating the Cost of Car Loans

Understanding secured and unsecured car loans in detail can be useful in saving money but, let’s first have a look at the numerous mechanism that affect the cost of your loan and of your monthly repayments. The cost of a loan is the total you repay less the sum borrowed. Hence, let’s say you are repaying $20,000 at 12% interest rate over 36 months; you will repay 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 car finance calculator will enable you to work this out for yourself.

An option to a car loan would be car hire purchase (HP), where you hire the car over the repayment period and obtain the title to the motor car with your final payment. Until then the automobile belongs to the HP company.

Cheap Car Finance Interest Rates

However, most credits are either secured or unsecured, and not all low interest car finance companies offer cheap car loans that are unsecured so let’s consider secured loans first. A secured car loan is one whereby the financier offers the loan with the car as security. If you fail to make payments, the lender can sell the car to recoup their money. It could be probable to get a secured car loan if the car is over a certain age, 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 are not exactly classed as a car loan. It is generally the car that is the security.

Secured car loans can include on-road expenses such as the registration, loan protection insurance for disability,death or unemploymentand comprehensive vehicle 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 required to make sure that the sedan is in fine requirement should it be needed to repay the lend in the event of you defaulting on your payments.

This might look hard , but these are standard conditions for any secured loan, not only car loans. Secured car loan terms are from 1-7years, and the interest rate will be lower than that for an unsecured car finance where the lender charges extra to compensate for their added risk. As with any loan, a deposit will result in lower payments, or a shorter term, whichever you prefer.

Some car loans can come with an option to have a balloon payment, which is an amount borrowed where you pay interest only and finalised the principle when finalising the loan. This is widespread by those whose income will raise over the period, and they will be in a improved financial view to pay a lump sum in 3 - 5 years time. This too results in either a cheaper repayment per monthor a shorter repayment duration.

If you are looking to purchase a used vehicle and need a used car loan quote, your finance package will be priced differently according to the car finance company and the age of your car. Many will charge higher car finance rates, and the current credit down turn has changed the outlook of many lenders to unsecured car loans in particular. Many no longer offer personal loans due to the increased risk in the current economic climate.

Car Loan Brokers

However, they are still accessible, and some car loan brokers can deal with a variety of unsecured car loans companies. In addition to the interest rate on such loans, you should also compare the fees charged, since they can involve a considerable outlay for you before you get the loan.

The key differences between secured and unsecured motor finance, therefore, can be summed up as:

Secured finance are cheaper to repay, with normally lower interest rates.

You need to have full comprehensive car insurance with all secured car loans, while unsecured financing will not.

Both loans could require life insurance cover for the finance, but secured loans are more likely to.

You can sometimes include comprehensive insurance, registration and other costs in the secured loan, but with an unsecured car loan you must take account of the the outlay on top of the amount borrowed.

Fees for unsecured car finance can be noticeably higher than for secured loans.

Not all loan companies will offer you the option of an unsecured car loan.

There few doubts that if your vehicle 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 finance for an older vehicle with your residential home as security, but you will have to make sure to maintain the finance payments since lenders are becoming unsympathetic in the current economic crisis. 

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