Today, the average person would prefer to own their own vehicle, instead of relying on others or public transportation. However, few have the savings to simply purchase that new vehicle or even used vehicle. Instead, they rely on a car finance company to purchase their first or their next vehicle. Furthermore, selecting just the right car loan is a very annoying, difficult, and frustrating process due to the confusion that surrounds loans for a car. Lets’ take a quick look at the popular types of car financing that is currently available along with a few caveats.
Secured Auto Loans
It is important to note that the secured auto loan is one of the most typical car finance loans that are currently available to the consumer and it is also the type of loan that is most familiar to the consumer. It should be understood that if the car purchaser defaults on the car loan, the finance company will repossess the vehicle and resell it to recoup their loss. If the purchaser defaults this could dramatically affect their credit and make it difficult to qualify for future loans.
Unsecured Auto Loans
An unsecured auto loan is less common than the secured auto loan. In order to qualify for the unsecured type of loan, the borrower should possess a high credit score and excellent credit history because of the fact that the car finance company does not use collateral and is relying on the borrowers promise to pay the company. These loans sound great on paper, but on further investigation, most have a much higher interest rate. Failing to repay might lead to qualifying for only the highest interest loans in the future and also deeply affect the individual’s credit history.
Middleman financing is also another type of typical car financing for a new borrower without much credit history. In this type of scenario, the car dealership will offer to find a car financing company from a list of preapproved lenders for the car buyer. The car buyer is also almost guaranteed approval. However, the interest on the loan is often much higher than with other types of loans.