Different Types of Car Loans
To make the process of choosing how to buy your car a little bit easier, we’ve put together an article listing the ins and outs of each major type of car loan. Here at the Auto Loan Centre, we want nothing more than to see our customers happy.
Secured Auto Loans
A secured auto loan is the most popular type of auto loan. This particular type of auto loan is when the lender essentially owns the car until the loan is paid off. This means if the customer fails to pay the loan, the lender will sell the car to make up for their loss. This type of auto loan is perfect for customers to build up their credit rating, however, if the lender has to sell your vehicle because you couldn’t make the payments, your rating will drop hard.
Unsecured Auto Loans
Unsecured auto loans are the complete opposite of secured auto loans. The lender gives you the money for the car with you having the contractual obligation to pay them back in installments. The difference here is that the lender does not have any legal right to the car. This means if you don’t pay the installments they can’t sell the vehicle to make up for their losses. Typically this type of loan comes with incredibly high-interest rates as the lender has no security blanket unless otherwise specified.
Simple Interest Loans
A simple interest loan is when interest is applied to the customer’s remaining balance. For example, if you take out a loan of 50 thousand dollars and pay 15 thousand towards it, interest is only charged towards the remaining 35 thousand. The earlier you pay the loan off, the more money you save.
Precomputed Interest Loans
This particular type of interest loan is a set of monthly payments based off of the original price. Let’s say you take a loan out for 50 thousand dollars. Regardless of how much extra you put down for each payment, the interest rates on each payment are calculated based off of the original 50 thousand dollar loan.
This particular option refers to the absence of a third party. Rather than having a company pay a dealership, and then you pay off that original company, the dealership itself would be helping you to finance the car. Direct financing allows customers to look around as long as they want to find the best deals. This option also allows customers to get pre-approved with relative ease.
Indirect financing refers to when a dealership works with another company to help the buyer finance their vehicle. This type of financing allows the dealerships to increase in the interest on the financing plan because they’re doing more to set up the customer’s plan.
In the house, financing is the perfect option for people with bad credit. Typically the way it works is the company providing the vehicle not only sells the car but takes payments from the customer. No third parties or middlemen. Despite the fact that interest rates may be higher than other options, in-house financing is a great way to build up your credit.
New Car Loans
New car loans refer to the financing of a brand new vehicle. These loans tend to have high monthly payments, which go on for longer than a used vehicle. However, the interest rates on new car loans tend to be a lot lower than that of used vehicles. This is because the car is relatively new and can easily be repossessed by lenders for collateral.
Used Car Loans
As used car loans tend to be smaller amounts (because used vehicles are cheaper), the monthly payments are lower than that of new cars. The interest rates on this particular auto loan are much higher than new cars because these vehicles are not worth much, and are hard to value as an asset in the eyes of the lender.
Private Party Loans
This particular type of auto loan refers to an agreement between two individuals. For example, if Craig owns a Toyota, and Bill wants to buy it but doesn’t have the full amount, he still has the option to privately finance it. Bill and Craig may agree that Bill pays Craig monthly installments of a certain amount until the car is completely paid off. This works great when the deal is between two friends or family members, but can see a lot of high-interest rates when between two strangers.
Lease buyouts refers to the buying of the vehicle after a lease runs out. Leases usually last about three years, and during those three years, the customer is responsible for paying monthly installments. When this is over there is approximately 30% of the car’s value to be paid for. At this point, the customer has the choice to either trade it in or pay it off. If the customer buys it, it becomes theirs.
Do What’s Best For You
When it comes to choosing which type of auto loan works best for you, it’s best to take into account every factor that affects you. Your credit rating, the type of vehicle you want to buy, the price of the vehicle, and so much more. For more information on each type of auto loan, or for advice on which one is best for you, feel free to contact our highly trained representatives here at the Auto Loan Centre.