How secured car loans work

How secured car loans work

A secured car loan is a loan where the car you buy is used as collateral for the loan. To do this, the lender keeps the car ownership as a guarantee of repayment if you can’t repay the loan.

Secured car loans usually have a maturity of up to 84 months – longer than most unsecured car loans. While the process of obtaining a secured car loan is similar to the process of obtaining an unsecured loan, it is important to consider the pros and cons.

What is a secured car loan and how does it work?

Secured car loans are the most common type of car loan. There are a variety of options available, and they are usually the easiest type of car loan to understand. But not every lender you come across will offer secured loans and even lenders that have different guidelines.

When you take out a secured car loan, you use a specific asset – the car you are buying – as collateral for the loan. As mentioned, this means that the lender keeps the car ownership as a guarantee of repayment if you are unable to repay the loan.

Benefits of secured car loans

Secured loans can be a good choice if you’re looking for a lower interest rate, a longer term, or to finance a more expensive vehicle, especially if you plan on keeping the car for a while.

Longer loan terms

Secured car loans usually have maturities of up to 84 months, which is much longer than most unsecured loans – car or otherwise. While a longer loan term means you pay more interest over the life of the loan, it may be worth it if you think you might be able to pay extra later or if you need the lower monthly payment.

Easier to qualify

Another advantage of getting a secured loan is that it is easier to qualify. The lender will look at your credit score, income, and debt-to-income ratio. But if you don’t have a lot of credit, a secured loan can be a good option because the lender doesn’t take as much of a risk if it has collateral.

Lower interest rates

Secured loans are typically offered lower interest rates than unsecured car loans. Again, if you don’t have the best credit, this can be a particularly helpful advantage when shopping for a new car.

How to get a secured car loan?

The process of getting a secured car loan is similar to that of getting an unsecured loan. You need to go through a lender or financial institution and fill out an application.

After that, you must provide information such as your current employment history, income, residence and any debts and savings. You should also prepare for the lender to run a report to get your credit score.

Make sure you also have your most recent pay slip, personal and vehicle details, bank statements and proof of residence with you. It is a good idea to calculate your expected interest rate and monthly payment in advance by using a car loan calculator.

If you agree, sign a loan agreement and the lender will start sending you monthly statements. Prepare to start making your monthly installment within the first month. And if you can, set up autopay to make sure your car payment is always paid on time.

What to consider with secured car loans

Secured loans can be a good option if you don’t have enough credit to qualify for a traditional loan. They are useful for low-loan drivers looking for a low interest rate and for those with better credit who want to pay a little more and get a better interest rate.

But these loans have limitations, including a limited selection of vehicles to choose from. If you are looking for a specific vehicle, such as a luxury car or an electric model, you may not find it available with a secured loan. You may also have to pay more upfront to make the interest on the loan competitive.

If you can’t find the exact vehicle you’re looking for with a secured loan, it’s worth researching unsecured car loans. These typically have lower interest rates, higher limits, and more flexibility, including the ability to finance 100 percent of the car’s value.

it comes down to

Understanding the basics of secured car loans can help you make a smarter choice when financing your next vehicle. Depending on the state you live in, collateral can also be a valuable option when applying for a car loan. Take the time to compare different lenders to make sure you leave the lot with the best deal.

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