Did you know that there is an average of 17 million vehicles sold in the United States of America each year? When it comes to purchasing a new vehicle for yourself or for your family, it is likely that you’ll want to consider getting an auto loan.
It doesn’t matter if you’re a first time car buyer or if you’ve purchased vehicles in the past, it is important that you know the types of auto loans available. This will help you get the best auto loans for your financial needs while also getting you behind the wheel of that car that you love so much.
The good news is that you’ve come to the right place to learn more about vehicle ownership and the best loans for your financial situation. Continue reading this article to learn more.
Secured Auto Loans
The majority of auto loans are secured loans. Secured auto loans work by being guaranteed by a lien. This means that if you fail to make your payments for the vehicle that you’ve just purchased, the lender has the legal right to take the vehicle from you since they’re the proper owners.
This possibility exists until you reach the point where the loan gets paid off. At that point, you won’t need to worry about your vehicle getting repossessed.
This is a popular type of auto loan for lenders. They have much less at stake if you can’t make the payments. This is a good situation for vehicle ownership as well. It provides a great benefit for you when you get your first car because you’ll get to enjoy lower interest rates on the loan.
If the main focus for your auto loan is that you get the lowest possible interest rate on the loan then you should go with a secured auto loan. Keep in mind that there are multiple things that affect your interest rate with a secured loan. Make sure to monitor your credit score as that is a big factor as well.
Unsecured Auto Loans
Unsecured auto loans are also popular when buying a vehicle. Unsecured auto loans mean that the lender of the money you need for financing the vehicle can’t place a lien on the vehicle. You won’t have to worry about the vehicle getting repossessed if you can’t make payments.
This has a significant drawback to it that you need to be aware of. You’ll face much higher interest rates. The lender is vulnerable to a big loss since there is nothing to secure the loan. To compensate for the risk that the lender faces with an unsecured loan, they charge higher interest rates.
Similar to the secured auto loan, the interest rate that you’ll get with an unsecured auto loan will also be affected by factors like your credit history and your current credit score. To learn more, check out Plenti Car Loan.
Simple Interest Auto Loans
Another type of auto loan that you can use in order to finance the purchase of a new vehicle is the simple interest auto loan. These work with the outstanding balance that you owe accruing or gaining interest on a particular basis. The most common way for these loans to accrue interest is on a daily basis.
It works similar to the other types of auto loans in that you will need to make monthly payments on the vehicle. The benefit of this type of auto loan is that you can speed up the process of paying it off. This is great if you want to limit the amount of money that you’re spending on the interest that results from the loan.
The tradeoff for speeding up the process of paying off the loan is that you’ll need to pay more or larger payments on the principal of the loan. This type of loan is one of the most flexible types of auto loans on the market today which is part of why it is gaining popularity with people buying their first car.
This is a perfect option for someone that has a significant amount of money saved up. It is also a great option for someone that expects to see a big increase in their cash flow in the coming months or years. This will help you finance a new vehicle without taking on excess debt due to interest.
Pre-Computed Auto Loans
Pre-computed auto loans are common but they’re far less flexible when compared to simple interest auto loans. If you opt for this type of loan then you’ll need to make scheduled payments on a consistent basis. These payments are designed to be an exact portion of the total amount that you owe on the loan’s principal and interest.
The big drawback to pre-computed auto loans is that making accelerated payments won’t reduce the total amount of money you owe the lender for the loan. You’ll have the option to pay more during the early stages of the loan but this will end up causing the loan to be front-loaded. In the end, you’ll end up paying the same amount of money no matter what approach you take.
This is a great option for someone that wants to purchase a new vehicle and wants a consistent monthly payment. Having a consistent monthly payment allows for much easier budgeting. It also gives you peace of mind and security if your finances take an adverse turn over the course of the automotive loan.
Choosing to go with a pre-computed auto loan for your vehicle ownership is wise if you need a predictable payment schedule and payment amount each month. It is up to you to decide if this type of auto loan fits your needs.
Now You Know the Types of Auto Loans
Purchasing a vehicle is a big step, and you’ll want to make sure that you know what you’re doing when you decide to move forward with car ownership. A big part of that is knowing the types of auto loans available to you and the benefits of each type. This will ensure that you get the best auto loans possible for your financial situation.
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