Are you planning to buy your dream car but don’t have enough cash to purchase it? In such a situation, you can obtain a car loan in order to own the vehicle of your choice. Read on to know about 2 types of auto loans and what factors you should consider while taking out an auto loan.
Auto loans – Secured and unsecured
There are 2 types of auto/car loans that you can take out in order to buy your dream vehicle. They are (1) secured auto loans and (2) unsecured auto loans.
Secured car loans: You need to pledge collateral in order to obtain a secured auto loan. You can use a valuable asset as collateral, such as, your home or the car that you’re buying. Usually, the interest rate is comparatively low on a secured loan. However, the risk of losing collateral is attached to such a loan; you may lose your asset if you’re unable to pay back the loan on time.
Unsecured car loans: As the name suggests, you don’t have to use collateral in order to take out an unsecured car loan. The interest rates are relatively higher on such loans. However, students, who don’t have any valuable asset, can obtain an unsecured loan to buy a car.
Factors to consider while taking out auto loans
You should consider the following factors while taking out an auto loan in order to own a car or exchange your old vehicle for a new one.
Zero interest loans – Usually, the loan term of a zero percent interest car loan is relatively high. As a result, your monthly payments on such loans may go up to a significant extent. Moreover, you may not be able to negotiate on the price if you take out a zero percent interest car loan from the auto dealer.
Dealer financing loans – Your car dealer may offer car loans; however, dealer financing loans may cost you more rather than taking out a loan from a bank. The banks can offer you loans at favorable terms and conditions if you have a good credit record.
Overall cost of the loan – It is quite important to assess the overall cost of an auto loan before taking out one. For example, you may have to make a lower down payment while taking out a car loan but it may increase the overall cost of the loan. You must also enquire whether or not you’ll have to pay prepayment penalties when you repay the loan in full prior to the end of the loan term.
Your credit score - You should check your credit score before applying for a car loan. This is because you may get favorable terms and conditions on your loan if your score is good. If necessary, you may increase your score before shopping for car loans.
Before taking out an auto loan, it is also advisable that you calculate the monthly payment on your car loan. If required, take help of a car payment calculator for the necessary calculations. It will help you to plan your finances in such a way that you can make your monthly payments on time.
Keyphrase: auto loan
Description: There are 2 types of auto loans (secured and unsecured) that you can obtain to buy a car. Know the factors to consider while taking out an auto loan.
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