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February 15, 2010
Ever wondered what the difference is between secured car loans and personal unsecured car loans and how that difference affects your finance and their repayments. The difference can vary depending on the bank or finance company, but is larger when the true cost of each is taken into account.
Before we get into the nuts and bolts of car loans packages , let’s first have a look at the various workings that determine the cost of your loan and of your monthly repayments. The cost of a loan is the total you repay less the sum borrowed. Hence, let’s say you are repaying $20,000 at 12% interest rate over 36 months; you will repay at the rate of $664.29 per month. That would total a repayment of $23,914.44, and the cost of the loan would be $3,914.44 plus any set-up or administration fees. A car loan calculator will enable you to work this out for yourself.
An alternative to a car loan package would be car hire purchase (HP), where you hire the car over the repayment period and take delivery of the owership papers to the vehicle with your final payment. Until then the car belongs to the HP company.
However, most credits are either secured or unsecured, and not all lenders offer car loans that are unsecured so let’s look at secured car finance first. Secured car finance is one whereby the lender offers the loan with the car as security. If you fail to make payments, the lender can sell the car to recoup their money. It is possible to get a secured car loan if the car is over a certain age, often 7 years, but the car finance term or loan term may be requested to be shorter than the standard 5 yearsor not at all by using your home or some other form of security. These however are not strictly classed as car financing. It is generally the car that is the security.
If you prefer you can request no deposit car finance and have all on-road costs added to the amount financed. Options like registration , loan insurance and comprehensive auto insurance as part of the financing deal. Loan insurance makes sure that the finance is paid off in the event of your death during the loan period, and car insuranceis needed to make sure that the car is in good condition should it be needed to repay the lend in the event of you defaulting on your loan commitment.
This might all sound like doom and gloom, but these are conditions you see with most secured car loans, not only car loans. Secured car loans terms are from 1-7years, and the interest rate will be lower than that for an unsecured car loan where the finance company charges extra to compensate for their added risk. As with any loan, a deposit will result in lower payments, or a shorter term, whichever you prefer.
You could also apply a balloon, which is an amount borrowed where you pay interest only and finalised the principle when finalising the loan. This is popular by those whose income will increase over the period, and they will be in a better financial position to pay a lump sum in 3 – 5 years time. This too results in either a cheaper repayment per monthor a shorter repayment term.
If you are buying a used motor vehicle, your loan will be priced differently according to the car finance company and the age of your car. Many will charge higher loan rates, and the current credit crisis has changed the outlook of many lenders to unsecured car finance in particular. Many no longer offer unsecured car finance due to the increased risk in the current economic climate.
However, they are still available, and some online brokers can assist in getting you a good low rate unsecured car loan. In addition to the interest rate on such loans, you should also evaluate the fees charged, since they can involve a considerable outlay for you before you get the loan.
The key differences between secured and unsecured car loans, therefore, can be summed up as:
Secured car loans are more affordable to repay, with generally lower interest rates.
You need to have full comprehensive car insurance with all secured car loans, while unsecured loans do not.
Both loans could require life insurance cover for the finance, but secured car loans are more likely to.
You can sometimes include comprehensive insurance, registration and other costs in the secured loan, but with an unsecured car financing you must include the the costs on top of the amount borrowed.
Fees for unsecured car loans can be greatly higher than for secured car loans.
Not all lenders will offer unsecured auto loans.
There few doubts that if your car is young enough to be given a loan with the car as colateral, then that should be your option. You might be able to arrange a secured loan for an older vehicle with your dwelling as security, but you will have to make sure to maintain the payments since lenders are becoming unsympathetic in the current economic down turn.
About Author
Car Loan Calculator is a website in Australia providing car finance information online. Use their car loan calculator to get car loan rates and finance repayments.
Horaayy..there are 18 comment(s) for me so far ;)
You've hit the nail on the head mate, you have to work out if the car will depreciate in value quicker than you pay off the loan. This depends on a few factors; how old is the car (newer ones depreciate more), how much you're putting down yourself and how long the loan is for (7 years in this case).
Remember you hardly pay anything off a loan in the first few years, but this is the period in which a car suffers the most deprecation… neither are straight line reductions.
As an example say you buy a $10k new motor and put down 5%. After a year your car is likely to be worth say $8k but the loan (at say 5%) will still be around $9,300. So you'd still have to pay out $1,300 + any excess on your comp cover.
Best bet is to do your numbers and assess the risk before you make a call.
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it’s almost like a photo
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Unsecured loans have higher interest rates than secured loans. The higher payment from the unsecured loan will increase the debt to income ratio and possibly result in a higher interest rate.
Given the figures you supplied, paying that loan off in 6 months will cost you a total of $416 in interest with payments of about $903. Let's say you can shop around and get the interest rate down to 15%. Your total interest expense over 6 months will be $221 with payments of $870.
If I was in your position, I would replace the car now, so I would be sure to have a reliable car. That would be more important to me than spending a lot more time shopping around on the possibility of saving $30 a month for 6 months, and worrying about my car dying every day.
The good news is after 6 months, you should be able to take your monthly car payment and put that amount into savings each month to build your emergency fund back up.
For a loan of only 6 months, even a 28% interest rate is not going to kill you. But you better make sure there are no prepayment penalties involved.
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Awesome work Williamsshamir
Great video.
Much love Kat
Get a credit card from local bank and pay it in time. You also can use this service to avoid common mistakes while buiding credit and pre-estimate future scores for different scenarios of payments – freecreditreport.deep-ice.com
I'm going to give you my answer, and then another option.
First, a decent and reputable car dealer will understand that you need a few days to get the money from your investments. If they won't "hold" the car for you, or try to force you into "buying today"…I suggest you walk out. There are a lot of car dealers (me included) who would be happy to set a vehicle on the side for you as you secure your own financing, or secure the funds to pay for the car. If they are pressuring you into 'taking it today" because it might be gone tomorrow, etc…just leave and go to another dealer.
The dealer may want a small check to hold the car for you. Offer him a check for $500…Then keep in touch with the manager or salesperson so they know you are coming in.
That said, many MANY car manufacturers are offering 0% on new, or very low interest rates (often below 3%).
Even a simple savings account is earning more than 0% interest. So, even if you HAVE the money sitting in an investment, or the bank….. why not LEAVE it there EARNING interest for you, while you borrow "free" money from dealer's finance company?
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HOLY CRAP! Comparing this to the original picture, they’re identical!
Scam. The name should have given this away.
First of all, you need to contact an attorney. There are only a handful of states in the U.S. that even recognize common law marriages. I don't know where you're from.
A relationship is only considered 'common law' if you did things like filed joint taxes together or used the same last name.
If you DID have a common law marriage…you CAN file paperwork in the same way you would in a 'legal' marriage, and in that case, you could have a stipulation in the paperwork about the car title that would be legally binding.
EDIT: Definitely contact an attorney….Texas is one of the states that DOES recognize common law marriages. You have options coming to you.
i use photoshop
wich program he is for doing this ? beside a tablet ofc