Car Loans
Type of Car Loans
Secured Car Loans
A secured car loan ties the value of the loan to the car, known as a security. This security, also known as an asset, when held against the value of the loan, reduces the risk on the part of the lender when they approve a car loan. The lower risk means a lower interest rate for the borrower, compared to a personal or unsecured loan of the same term and amount. Lenders will also only lend you the amount necessary to cover the cost of the car, up to your borrowing limit. This is determined by your credit score and income.
Personal Car Loans
Personal loans are a type of unsecured loan that are not tied to a car or asset (security.) That means you can apply for a personal loan and spend the money as you like – but you will still have to pay back the loan as agreed. Unsecured personal loans mean that a bank or lender cannot repossess your car if you fall behind on payments and default. In exchange for this, your interest rates will be higher than a comparable secured loan. These are far less common, as a car is a ready option as a security.
Car Loan FAQs
Which type of loan is better? Secured or unsecured?
That’s up to your preferences and circumstances. Secured loans are more competitive than unsecured loans, but your car is on the hook if you can’t pay off the loan. Unsecured loans have more flexibility but are more expensive.
Is a comparison rate a different type of loan?
No. A comparison rate is a different way of calculating the total cost of a loan. Instead of using a base interest rate and adding fees after the fact, a comparison rate includes most fees and charges as part of the rate.
I’m looking at a car for my business. What are my options for car finance?
The most popular options for financing cars for business is a chattel mortgage or hire purchase. These are almost identical in operation but differ on “on-the-books” ownership, whether the business takes ownership straight away or at the end of the loan term. The car or vehicle must be for over 50% business use to qualify.
What car loan is best for paying off faster?
A variable car loan is best if you wish to make extra repayments or lump sum deposits, as you are usually not penalised like in fixed rate loans.