If you’re in the market for a new vehicle, expect to pay around the price average of $36,718.
Odds are, you don’t have that kind of money sitting around, but that doesn’t change the fact that you need a new vehicle. But, you’re in luck, the majority of Americans use vehicle loans to help fund their purchase. It’s important to know about the loans available to you, and their terms, before you drive your new vehicle home.
Are you confused about the different types of car loans out there? Keep reading to learn about the most popular car loans with drivers.
Secured Car Loan
Out of all the different types of car loans, the most common is the secured car loan. A secured loan means that you sign over some type of collateral in exchange for the funding.
For car loans, the collateral is most often the vehicle that is being purchased. This means that if you fail to repay the loan, the lender has the ability to take possession of the vehicle. But, when you repay the full loan, you receive the vehicle’s title and the lender no longer has any involvement with the vehicle.
Since a secured loan offers less risk for the lender, these often offer the best interest rates and repayment terms.
Unsecured Car Loan
The next most-popular auto loan type is the unsecured auto loan. As the name suggests, these are essentially the opposite of a secured loan.
To receive this loan, you do not offer any collateral on the loan. This means the lender is not able to take possession of the vehicle or any assets if you don’t repay the loan. Instead, a lender would use legal means to receive the loan repayment if you fail to pay.
Because this involves a higher risk to the lender, these don’t have as desirable of interest rates or repayment terms.
Car Title Loans
Car title loans are a little different than the other loans discussed above. While title loans still involve a vehicle, they aren’t used to purchase a vehicle. Instead, an auto title loan uses your vehicle as collateral to secure funding from a lender.
Finding title loans first involves actually having a title for your vehicle. This means that any loans used to purchase your vehicle, secured or unsecured, are completely paid-in-full. You then hand over the title to the lender and receive a lump sum of cash in exchange.
These are generally short-term loans, ranging from a few weeks or months. Once you pay off the loan, you receive your vehicle’s title back. But, if you fail to repay the loan, you risk losing your car since you used it as collateral.
Take Advantage of the Different Types of Car Loans
After reading this article, you should better understand the different types of car loans.
When it comes to buying a vehicle, you can use a secured or unsecured vehicle loan to help fund the purchase. Once your vehicle is paid off, you can then use a vehicle title loan as a way to fund any other purchase, vehicle-related or not.
Now that you know a little more about the ways to fund your vehicle purchase, browse the rest of this site to discover which vehicle you should buy.