Are Unsecured Auto Loans better than Secured Auto Loans?
- Car Finance,
- Aug 30, 2019
Nowadays, a lot of people offer several types of “get out of jail free” cards but unlike the name of the card itself, it does not get you out of any “jail” and even if it does, it is not for “free.” This jail can be of numerous types, but most of the times it is a financial restraint. Brokers, banks, and lenders offer you money and you have to pay them back but not without any cost. They charge some amount of money as interest and if you fail to pay them back, you have to suffer the consequences… which are mentioned in the agreement.
What is a secured and unsecured auto loan?
When you are going to buy a car but run low on the credit, you resort to the above-mentioned people for help and you are introduced to the term “auto loan” and different types of auto loans. An auto loan is basically a loan that is given to you to buy a car of your choice.
There is a secured auto loan and an unsecured auto loan.
Secured auto loan givers take your car as security in case you fail to follow the terms of the agreement and do not pay on time or break the deal. Secured auto loans are considered to be, by many, as cheap car loans. These are easy to understand and even easier to get than unsecured auto loans. If you wish to read about secured auto loans, click here.
Unsecured auto loan, on the other hand, is the complete opposite of that. It does not take your car as the security and the givers certainly do not repossess it if you fail to pay. There is no certain “security” or “collateral” involved in unsecured auto loans.
Why is unsecured auto loan called “unsecured”?
An unsecured auto loan is called as unsecured since it does not keep any property of the customer as a security or collateral as the secure auto loan does. This means that the customer is allowed to own the car completely and it is his responsibility to ensure that the car is kept in order and he keeps on paying the loan installments; however, the lenders are not allowed to sell the car purchased by unsecured auto loan and the risk goes more towards the lending side rather than the borrowing side. By getting an unsecured auto loan, you get to keep the car and the givers can not take it away if you do not pay them back. It’s a win-win situation… but it is highly advised that you pay them back within the agreed time.
Benefits of an unsecured auto loan?
Everything has a benefit and so does the unsecured auto loan. There are plenty of them actually:
1- Complete Ownership: You get to own the car completely. There is no other party involved in the ownership of the car and no power on earth can change that… unless you are unable to pay the lender and eventually have to sell the car to pay back. There is a reason the unsecured auto loan is also called an uncollateralized loan. So, the question that when financing a car, who has the title? The answer is simply, “You.”
2- Freedom of Choice: You are not restricted by anything! You can request for a loan greater than the actual price of the vehicle and use the extra money on some tune-ups or add-ons if you want or keep them for repairs. The choice is all yours on how much you want to spend, however, you have to pay it all back with interest.
3- No repossession: Unlike secured car loans, the unsecured auto loan does not allow repossession so the collateral value of the car is literally equal to zero. It can not be taken back in case you fail to pay the loan back in the required time.
4- Low Insurance Cost: Last, but not least, there is low insurance cost in unsecured auto loans in comparison to its counterpart. While secured car loan lenders or brokers may force you to pay full insurance, you need not do that when you have an unsecured auto loan.
Drawbacks of Unsecured Auto Loan:
With all the advantages, there always follow the drawbacks.
1- High-Interest Rates: Unsecured Auto Loans always demand high-interest rates since there is no security involved in it, unlike the secured car loans which cost less in interest rates.
2- Difficult to Achieve: With no security involved, unsecured auto loans are generally difficult to get since the demand is very high and people with bad history are usually denied, just like the people seeking low credit auto loans.
3- Lesser Amount: Just like higher interest rates, unsecured auto loans offer lesser amounts in the whole loan than secured loans since there is no source of guarantee of the loan being paid back.
Unsecured Car Loan Requirements:
Surprisingly, unsecured car loan requirements are very low. All you need is a good history with returning the loans and a credit score enough (by the standards of the lenders or brokers) to pay the loan back, and you will be good enough to at least be considered for an unsecured car loan. Remember that the selection is difficult and only a few are accepted for the loan.
So, are unsecured auto loans a good idea?
To wrap it all up, the car loans are either secured or unsecured. The question remains which is better, and honestly, it all depends on the situation, context, and several other factors.
If you have a good credit score, want to own the car completely and do not have any kind of financial burden on yourself, go for an unsecured loan.
However, if you have a low credit, want to go for low-interest rates and more amount than you need, go for a secured car loan.
In the end, the choice is all yours and no one else can decide it for you.
One thing that needs to be brought into consideration that when you do get the loan, you would want to ensure that the car you want to purchase is in a good quality and to perform a REVs Check, many sites like QuickREVs offer to do it for you quite efficiently and also provides car history check, VIN number check, and PPSR search.