While I was contemplating which car to buy, one other question that was lingering at the back of my mind as to whether to go for a secured car loan or an unsecured car loan. Both these loans have their own set of advantages and disadvantages, and you need to align these characteristics to your financial situation.
After weighing my priorities as well as my financial situation, it was clear to me that going for a secured car loan was a better option for me. It offered a lower rate of interest and the credentials required to get approval for the secured loans were much more relaxed than for the unsecured loan.
I am not even sure if I would have been eligible for the unsecured used car loan. In any case, let me tell you a bit about the differences between secured loans and unsecured used car loans and what led me to decide that a secured loan is a better option for me.
Secured used car loan has a lower rate of interest. It was one of the primary reasons why I chose to go for a secured used car loan. As it is I was buying a used car due to budget constraints, and I didn’t want to burden myself financially any further with a high rate of interest charged on unsecured used car loans. Moreover, getting an unsecured used car loan isn’t easy these days, and one needs a solid financial background and credit record for it.
Unsecured loans typically are personal loans that you can use to buy a used car. The rate of interest is higher on such loans as the banks or the financial institution offering lending services are not taking any collateral they can acquire in case you default due payments. Higher the risk the lenders take higher is the interest rate. However, with the amount you get from unsecured loans, you can allot for other services like car paint, car servicing, interior dry cleaning, car repair, and more.
I chose to go for a secured used car loan because most of the authorized used car deals have tie-ups with the banks and other financial services that offer loans. Once you decide to by a car for them and have the necessary documents as well as the down payment ready, the car dealers themselves would streamline the process of acquiring the loan for you. It basically offloads the burden on the buyer to go through the hassles of wandering from one bank to another to get a secured loan for a used car with a reasonable rate of interest.
One of the factors you need to consider when deciding between secured and unsecured loans is can you afford to lose the car in case of payment default from your end in the future? It is because if you don’t make a due payment towards your secured loans for three month period, in most cases, the repo guys from the bank would possess the car to realize the balance dues. In unsecured loan types, the lender does not have the right to possess the car, and the only alternative they have is to drag you to the court to realize their monetary dues.
Unsecured loans come with rigid terms and any default in such loans would hurt your credit rating badly. With a secured car loan, the rate of interest is low, and the terms are flexible as well. There is a possibility to change the terms as well as the tenure in some cases, depending on the leniency of the lender. It was a better option for me as I was just starting my career and didn’t want to hurt my credit ratings by any means.
Secured used car loans are much better, and the authorized car deals and used car franchisee would be able to help you get it quickly due to their association with various banking and financial institutions. The process of buying a used car through these dealers and getting a secured used car loan is easy and streamlined for the convenience of the buyers. However, if you choose to go with an unsecured used car loan, the onus is on you to get the loan. The high rate of interest would continue to eat up on your savings, and any default would continue to dig your debt grave deeper.