Did you know that in 2021 over 15 million new cars were sold in the US? Consumers used several types of car loans to help raise sales by 3.4%.
Understanding the car loan process and available options makes buying a new vehicle less daunting. It’s important to choose the right loan for your specific financial situation.
The following guide will explain different types of car loans and car loan rates. Read on to learn how to get a car loan that’s best for your next vehicle purchase.
Secured Car Loans
Secured loans involve a lender putting a lien on the vehicle you’re purchasing. Other types of secured loans might put the lien on different assets like another car you own or your house.
A lien used by the lender lets them repossess the vehicle if the payments don’t get made. Secured loans often have lower interest rates because they’re not very risky for lenders.
Unsecured Car Loans
Unsecured loans aren’t backed by a lien on the vehicle and lenders can’t repossess the vehicle. Expect higher interest rates with this loan type because of the greater risk to the vendor.
Keep in mind that your credit score also affects the interest rates for unsecured loans.
Title Car Loans
Title car loans involve borrowing straight against the value of your vehicle similar to a home equity loan. The lender puts a lien on the vehicle and takes control of the title after the loan gets issued.
It’s a type of secured loan, but buyers can get the money much faster with title loans. You can visit www.titleloanser.com to use a title loan calculator and find out if it’s right for your situation.
Simple Interest Car Loans
The outstanding balance of a simple interest car loan builds interest over time. Lenders require monthly payments, but faster payoffs result in less interest.
Simple interest loans work well if you have significant savings or anticipate your income to increase soon. It’s a good way to limit your total borrowing costs if you have room to breathe financially.
Pre-computed Car Loans
Pre-computed car loans don’t offer the flexibility of simple interest loans. Lenders request scheduled payments with payments designated to a specific portion of the loan’s principal and interest.
Faster payments won’t affect the total principal or interest but offer a more predictable payment each month. Pre-computed loans work well for tight budgets.
Lease Buyout Car Loans
Lease buyout loans provide a way for total ownership of a vehicle after lease terms. Borrowers make fixed payments over a set term after a lender pays for the lease buyout fee.
The lender’s lien gets lifted after the loan’s principal has been paid off. Then, the borrower will own the car outright.
Understanding Types of Car Loans
Now you know the key differences between several popular types of car loans. Consider your budget, interest rates, how fast you need financing, and if you want to eventually own the vehicle outright.
Check out our site’s finance section for more helpful tips and fantastic information.