Secured auto finance, what is all the fuss about?
We all know we live in an economically unstable world that has gone from economic boom to recession in the last year. However people still need transport to get to work, school and to go shopping. Not only that, people still like expensive cars. As good patriots we all want to do our bit to lift up the economy, if doing so means buying our favorite Audi, Toyota or Ford, well so be it.
Of course, this consumerist fever is harder to uphold when the whole credit system has fallen into crisis. Banks need to lend to make business and create profits. Governments need people to buy for the economy to have a chance to recover. Facilitating finance is the only way it is going to happen. However, after the credit crisis, new and more stringent standards are in place to reduce the cropping up of bad debts. This means that most people cannot qualify for a loan as their credit rating is far from perfect.
A way out of this vicious circle is the use of Secured Auto Finance loans.
What are Secured Auto Finance Loans?
Secured Auto Finance loans are car loans that are secured by a collateral, generally a house. This means that if for any reason you default in your car loan you will have to use the collateral to cover the loan. This could mean that a borrower with secured auto finance loan will lose his house if he does not pay the auto finance loan. That is the risk of taking on a secured auto finance loan on your home, if you don’t pay you take the risk of losing your home.
Secured auto finance loans can be secured on other forms of collateral besides a house although a home with equity is by far the most popular option.
The benefit of getting a secured loan over a personal loan without security is two-fold.
1) You get better interest rates. Secured auto finance loans interest rates are considerably lower than general loans. This is because the risk banks take is smaller and they require a smaller profit margin to cover the losses of people that default on their loans. This is an important concept we do well to understand. The more reliable a client you are and the more collateral you can provide to the bank the cheaper the interest rates and loan startup fees.
2) It is easier to get your loan accepted. The approval process for people who need a personal loan goes through many stages where the income, reliability, credit rating of the potential customer is put through the microscope in order to assess if he is a safe bet as borrower. With secured loans it is simpler. The bank is covered for most of the loan if the borrower decides not to pay or cannot pay. Therefore the background check and credit rating is much less stringent. This allows more people with less than perfect credit rating get their loan approved.
Best auto finance options for your new car.
Choosing which kind of auto finance is best for your new car is a hard question to answer. There are many factors and circumstances that affect the wisdom of choosing a certain finance method and the suitability of another option. In fact you are the best qualified to specify what is more important for you in an auto finance. There are many types of auto financing, all with one benefit or disadvantage to deal with. We always suggest our readers to consult a finance professional that can give you advice based on your specific circumstances. However it is sometimes difficult to know what y0u want when you don´t know the options you have at your disposal. So here is our suggestion. Read this and other articles on the auto finance options at your disposal and then write down what is most important for you in auto financing. Then consult and independent auto finance adviser and hear what he has to say.
So what are your options and what are the main characteristics of these options?
These are only a few of a large list of possible finance deals. However because of their format and characteristics I feel they are descriptive of the auto finance sector as a whole.
0% Auto Finance from Car dealers.
Car dealers will sometimes offer 0% auto finance in an effort to attract customers. 0% finance is great news so if you qualify it might be a good deal for you. These loans are not for everyone, to qualify is rather difficult. Only borrowers with excellent credit rating can apply. These loans also tend to exclude other discounts we are used to receive from car dealer. It is important that you work out your savings against the potential rebates and discounts you would receive if you did not get the 0% finance.
Car Loans.
Car loans are a pretty wide term but in the context of auto finance they refer to auto financing that uses the car itself as collateral for the loan. This means that if the borrower defaults on the payments the bank or finance company will own the car. In fact the borrower does not own the car until he has paid the last installment of the auto finance loan. Interest rates for car loans are lower than personal loans as they have some collateral. On the flip side, you cannot sell a vehicle with a car loan on it without the permission of the loan managers.
Personal Loans.
These are loans Banks and finance companies give you based solely on your word and credit rating. The interest rates tend to be higher because of the higher risk involved. On the positive side you own the car outright and can sell it whenever you want. Personal loans are great for pre arranged finance when buying a car. It is useful because it gives you the necessary leverage to barter for a cheaper price when you have a pre-arranged personal loan up your sleeve.