Buying a car is a milestone worth celebrating, one that many hard working Australians strive to achieve in the earlier stages of their career. While a vehicle is a relatively accessible investment for many individuals, the steep price tag still compels people to apply for auto loans to help finance their dream ride.
All this led to a whopping $1.2 trillion outstanding debts, proving the popularity of auto loans for aspiring car owners. But don't just choose whatever auto loan you first see, as there are different types to consider and compare for a higher value.
Understanding what differentiates auto loans from one another will help you make the best choice for your financial needs. Here are more details about auto loan types:
What to Consider Before You Sit Behind the Wheel
Secured Auto Loans
Secured auto loans are the most common kind of auto loans you'll find in the market. Lenders set the loan amount based on several factors such as the car's value, depreciation rate, and market price.
The vehicle is then given as collateral in case of default. Secured loans aren't given on a case-by-case basis and are a standard set of loans that are similar for everyone. The interest rate is also lower, making it more attractive for car owners.
Unsecured Auto Loans
Unsecured auto loans are given to borrowers without any collateral. They are usually considered subprime loans, which are more susceptible to default and delinquency. Without any collateral to assure the lender's risk tolerance, then it's not a surprise that unsecured auto loans often come with a significantly higher interest rate.
That's why unsecured loans are more expensive for the borrower. The only upside is that you don't need to put a car up for collateral, making it suitable for people with bad credit or who don't own a vehicle.
Pre-Computed Auto Loans
Pre-computed auto loans are auto loans that are based on a pre-set schedule or the pre-computed amount. In such plans, the borrower pays the same amount every month for a predetermined amount of time.
The interest rates vary depending on the term, interest rate and the qualifications of the borrower. Some lenders may even include an early payoff option, where the borrower can pay off the loan earlier than usual and save on the interest payments.
Other Types of Auto Loans to Look Into
While the two most common types of auto loans are the ones listed above, there are other options that you can look into when it comes to financing your vehicle. Here are some of them:
Lease Buyout Loans
Lease buyout loans are often used by people who rent cars as they allow the borrower to purchase their car under lease from the owner. The vehicle is then owned by the buyer and the lease payments are then waived. It's an excellent way to purchase a vehicle if you have poor credit.
Title loans are often given out to people who can't qualify for a standard loan. The borrower puts their car title as collateral, leaving their car as a guarantee for their monthly payments. It's good to use if you have no cash to finance the purchase and have no credit to speak of.
The Bottom Line: The Importance of Choosing the Ideal Auto Loan that Meets Your Needs
Auto loans are one of the easiest ways to purchase a vehicle. As you can see, they come in different forms, with each one catering to the specific needs of the borrower. It's important to know what kind of loan you're looking for and find a lender who can provide that.
If you're still not sure about what kinds of auto loans you can expect, don't hesitate to contact a reputable and experienced lender. They can help you compare the pros and cons of different auto loans and determine which one is truly the best for you.
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