Buying a car is a significant purchase and not one that should be made lightly. So when it comes to organising finance, it pays to shop around to ensure you’re getting the best deal. Don’t restrict your search to the big banks, as there are plenty of other lenders that could provide you with highly competitive options. A car loan works much like a personal loan, the difference being you’re only permitted to use it to purchase a car. And a crucial car loan feature to familiarise yourself with is the difference between secured loans and unsecured loans; what they mean and which one is best for you.
Secured Car Loan
When you sign up for a secured car loan, the car is generally used as security for the lender. This means if you default on your loan, they are able to sell the car to recoup the funds in order to get the loan paid out. Secured loans will usually offer a lower interest rate as there is less of a risk to lenders. You may also be able to borrow a higher amount.
Unsecured Car Loan
Taking out an unsecured loan means you are not required to put your car (or anything else) down as security for your loan. Due to the risk this poses to the lender, you will find the interest rate is often higher, and you typically won’t be approved to borrow as much as you would on a secured loan. It’s important to ensure you’re on top of your repayments when you’re paying off any loan, be it secured or unsecured, as it can be severely damaging to your credit rating if you default and have no other payment alternative.
Which One Do I Choose?
After weighing up the difference between secured and unsecured car loans, you’ll no doubt be favouring one or the other; however, there are other factors you may need to consider. When speaking to your lender, it will be helpful to ask the following questions to ensure you’re making the right decision for your situation:
- What interest rate is applicable?
- Will the interest rate be fixed or variable?
- What happens if my repayments fall behind?
- Will I be charged a fee for paying extra off my car loan?
- Will I be charged a fee for paying my car loan out early?
- What is the total amount to be paid over the course of the loan, including interest and any fees?
For more information on the right car loan for you, call Rapid Finance today on 1300 467 274.