Today, there are more choices than ever for auto loan financing. The dealership, your local bank or credit union, and even internet banks or credit card companies may offer you the best interest rates on a car loan. One of the choices you may be looking at is whether to get secured or unsecured auto loan financing.
What is the difference between these two types of financing? The type most consumers are familiar with, and that we typically think of as an auto loan, is what is called a secured auto loan. With a secured loan, the dealership or financial institution is considering your car to be security for the loan. This type of financing is the one most commonly used for purchasing automobiles.
Another type of financing is an unsecured auto loan. This type of financing is similar to a personal loan or line of credit, in that the bank is not using your car as collateral for the loan, but relying entirely on your credit history to judge your ability to repay. With an unsecured loan, the type or age of the car is not a consideration as part of the criteria for getting the loan. Also, with an unsecured loan, you don’t run the risk of your car being repossessed if you do not repay the loan on time.
Depending on your needs, either type of financing might be right for your particular situation. For instance, if you are buying a used car and can’t get a secured auto loan for the purchase, it might be worth it to you to get an unsecured loan that you can pay back quickly. However, unsecured credit is typically more expensive than secured credit in terms of interest rates. So if you expect to be paying back the loan over a long period of time, you might be better off with a secured auto loan and run the risk of repossession.
Whatever your choice, when you are looking for the best auto financing options, shop around and compare to get the best interest rates at various lenders.