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.