According to many reports, Americans have at least $1.2 trillion in outstanding car loans. While some prefer to buy used cars with cash, there is no doubt that the car loan industry is massive.
You have a higher chance of taking out a car loan for your ride than buying it upfront. Consequently, you must become familiar with the different types of car loans there are. By doing so, you’ll be able to know the right one to go for when the desire for a ride of your own comes along.
Check out our list of popular types of car loans available in Phoenix. Choose one that best suits your situation.
Secured Car Loans
Secured car loans are as named. That is, when you get one, you’ll have to provide some security. In this case, it will be the car. Consequently, if you default on repaying the loan, the lender can effectively repossess the car, sell it, and recoup your debt.
Sound familiar? If you’ve ever had a title loan in Arizona, then you would know that the lender holds the lien. It’s a legal structure that enables the lender to keep the vehicle title in its name. It also makes it possible for the lender to repossess the car. The lender removes the lien when you have repaid the loan in full.
Secured car loans have an advantage, however. Because they are of relatively low risk for the lender, they usually have low-interest rates for the borrower. And if your credit card rating is excellent and the loan term is short, you can easily apply to get one.
Unsecured Car Loans
When you take an unsecured car loan, you do not need to present any collateral or security. Therefore, you will have to repay the lender before the lender can recoup its loan. As a result, unsecured car loans are not as commonly given as secured ones.
With unsecured loans, vehicle titles are in the name of the borrower, not in the name of the lender. As a result, the lender cannot sell the car to recoup debt when the borrower fails to repay.
In short, what fundamentally distinguishes this type of car loan from the secured one is that there is no underlying collateral. Therefore, they usually attract higher interest rates.
Simple Interest Car Loans
If you are looking for a type of car loan that is flexible, you should consider a simple interest car loan. First, it’s straightforward. Interest on this type of car loan is charged periodically, which can be daily, weekly, or monthly.
As a bonus, you’ll have the opportunity to accelerate your payments by increasing the amount. When you do this, you also get to reduce your interest expenses.
Therefore, if you are concerned about saving money and limiting your borrowing expenses, try out this type of car loan. You’ll thank yourself for it.
Pre-computed Car Loans
Pre-computed car loans, in spite of their downsides, have one advantage: predictability. When you take a pre-computed car loan, you will have a precise amount; you will be repaid at a pre-determined, periodic basis.
Hence, pre-computed car loans are not as flexible as simple interest car loans. And no matter how much you pay back at those times in loan repayment, the principal and interest expenses are not, in any way, affected.
For example, if you make a half down payment on a $30,000 car. Your loan repayments will still be calculated by taking all the interest that will be due over the term of the loan and adding it to its principal amount.
Nevertheless, because of the predictable repayment schedule, this type of car loan can be the best for you if you have a budget to fit in precise loan repayment fees.
If you ‘e not comfortable with any of the previously listed options, then you might want to consider taking a car loan instead of from institutional lenders like banks, credit unions, and online lenders.
Any of those institutional lenders can grant you a loan which you can use to get your car of choice from a third party dealership. With this, you will have the freedom to choose where you go shopping for your dream ride.
Indirect financing has become popular in recent years because of its ease of use. However, it attracts some extra costs in the form of additional interests from a third party, the dealership.
The dealership sells the car to you, as well as facilitate the loan from a prospective lender.
Indirect financing is also provided by lenders attached to different car makers such as Toyota, Chrysler, etc. However, this type of indirect funding comes at a discount or even a rebate.
If you have a terrible credit card report, do not worry. Instead, you should seek an in-house financing dealership. These arrangements will not only provide you with a car loan; they can sell you a car, too.
However, there is a problem. With this option, interest rates can be too high. Therefore, you should keep this in mind before you take the plunge.
Private Party Loans
Have you seen a car listed for sale by a private party in the news? And the vehicle tickled your fancy, so you are strongly considering to buy? Easy. You can take the line of a private party loan.
However, you need to consider if the private individual has completed loan repayments on the car or if the associated lien has expired or is still on.
You might be surprised how this can make this list, but you really can get a car through an arrangement so named. At the expiration of a lease contract, you can choose to either renew it or “buy out” the vehicle.
With a lease buyout arrangement, you will be requested to make some scheduled payments until you can pay for the car in full.