There will always be people in need of a new or used car, but it’s rare that someone has enough cash to pay in full up front. Because of the high price point, most people must rely on credit or a loan in order to buy a vehicle.
Thankfully, there are many different types of auto loans available. With so many options available, choosing the type of auto loan that will work the best for you could become a complicated process.
Before deciding on the best type of loan for a car, it’s important for you to know what types of auto loans are available to you.
The Secured Auto Loan
One major type (and likely the most well-known) of auto loan is referred to as a Secured Auto Loan.
These loans are guaranteed, or secured, by the support of some underlying asset—which is considered to be collateral. In the case of an auto loan, this is simply the car itself. You don’t fully own the car until that loan you took out to purchase it is paid off.
When it comes to auto loans, you as the borrower will need to compare your options. For example, another type of loan is an “Automobile Refinance Loan.” As the name would suggest, this is secured by your existing vehicle. Consumers usually choose this option to get a better rate of interest or longer term then their original loan. Some consumers don’t get the best available financing terms when they enter a dealership, mostly due to lack of knowledge of their existing credit profile. Or perhaps they’re a first-time buyer or have poor credit. Once a consumer makes 12–24 on time payments, they’re eligible to refinance their existing loan into one with more favorable terms.
A third type of auto loan is referred to as a “Secured Personal Loan”. These allow a consumer who has a paid off automobile to obtain a personal loan using their vehicle as security for the loan. Secured Personal Loans are in high demand and usually have less underwriting requirements than an unsecured loan, as the vehicle’s equity plays a major part in the decision to grant the loan. These loans are usually short term, ranging between 12–30 months. They have a fixed rate and term, unlike credit cards that are revolving and can take numerous years to pay back if you stick to minimum payments.
Choosing a Secured Auto Loan—What to Consider
Whenever you’re considering a secured auto loan, you’ll need to take into account factors such as interest rates, terms of the loan, and your lender’s reputation. It’s a big decision!
Deciding to buy or finance a car is one of life’s big moments, and you want to make sure you get it right. You want to ensure you get the loan that will work the best for you and your family’s unique situation. For many people, that may mean getting a secured loan with their new car serving as the loan’s collateral. But of course, every person’s choice is their own, and it is always critical to consider all of the factors before you make such a decision.
However, it’s not a decision you have to make alone.
At Bay County Finance, we’re here to help you. Feel free to reach out and contact us today. We would be happy to discuss your options and help you make the most informed choice possible. Contact us and we can get you started on the auto loan application process right away!