When getting a new or used car, most people turn to auto loans to help them get the vehicle they want. But what are the different types of auto loans available to finance a car with no issue? How do you know which one is right for you? Well, several different types of auto loans are available, each with its own benefits and drawbacks. Lucky for you, here we’ll show you the four most common types of auto loans. We will also provide a brief overview of each option to decide which option is best for you.
Secured Auto Loans
With a secured auto loan, the purchased car acts as collateral for the loan. This means that if you fail to make payments, the lender can repossess your vehicle.
However, because there is less risk involved for the lender, they often offer lower interest rates and longer terms on this type of loan. As a matter of fact, many lenders have minimum loan amounts for secured auto loans, often starting at $15,000 or more.
Unsecured Auto Loans
Unsecured auto loans, on the other hand, do not require collateral. This means that the lender is taking on more risk, so they often offer higher interest rates and shorter loan terms. Unsecured auto loans are also typically only available for less expensive vehicles, with a maximum loan amount of around $25,000. But keep in mind that if you do default on an unsecured auto loan, the lender does not have the ability to repossess your vehicle.
Simple Interest Loans
A simple interest loan is one where the interest is calculated daily and only on the remaining principal balance. This means you will save money in the long run because you are not paying interest on a decreasing loan balance, as with other types of loans. However, these types of auto loans often have shorter terms and higher monthly payments. Things can be a bit tricky with simple interest loans because they are not offered by all lenders and often require a high credit score to qualify.
Car Title Loans
But what if you want to purchase a car but have bad credit or no credit? That’s where car title loans come in. These auto loans use the vehicle purchased as collateral, just like a secured loan. However, they also require you to hand over the title of your car during the duration of the loan. If you default on the loan, the lender can repossess and sell your car to cover the remaining balance. Be wary of car title loans as they often come with high-interest rates and short terms, making them a risky option for financing a vehicle.
As you can see, several options for auto loans are available to finance your next vehicle purchase. It’s essential to research and compare offers before making a decision, as each type of loan has its own set of benefits and drawbacks. Knowing the ins and outs of these different auto loan options allows …
