What Are the Different Types of Car Loan?

You might not have considered that taking out a car loan can help build or repair your credit rating! This is because you are showing you’re a responsible buyer. And there are even bad credit loans that you can take out to get the car you’re after

In general, there are various types of car loan options these days as there are many sources other than traditional banks that can provide you with one.

We’ll look into some of the more popular types of car loans and explain a little about them. After reading this post you’ll have a solid insight into the direction you want to head when thinking about getting an auto loan.

Secured and Unsecured Car Loans

All car loans will either be secured or unsecured. With secured loans, often the lender might place a lien on the car you are purchasing. Other forms of secured loans may place a lien on other assets that you own, like another vehicle or your home.

Then, if you don’t pay when promise, the lender can pursue the taking of the assets in question. And of course, you should be fully aware of the assets that you use to secure your loan

Unsecured loans don’t permit lenders to seize any of your assets if you don’t make payments on time. Instead, lenders must pursue the defaulting borrower via other legal measures. Most car loan rates for unsecured loans are high because of the risks involved for lenders.

Simple Interest and Precomputed Loans

Simple interest loans charge interest by the day, week, or month. The lender will compute each period depending on the amount of principal you owe on the loan.

If you pay off more principal on your loan, you won’t need to pay interest on that principle anymore. You can pay off a simple interest loan quicker and pay less interest throughout the term of the loan by making early payments.

With precomputed loans, lenders compute your interest for the whole term and then split it into equal installments. This technique of determining interest is more rigorous than simple interest loans because you pay the same percentage of interest every month.

An easy way to figure out your interest payments is to use a car loan calculator. First, understand the type of loan you are looking at and then run through the numbers.

Bad Credit Car Loans and Car Title Loans

For those that have a poor credit history and rating, it might seem impossible to get a car loan. However, there are bad credit car loans available for such people.

A car title loan is one where you use your car as collateral, making it a secured loan. For example, a reputable provider of such loans is fastaction.ca.

The Different Types of Car Loan

We’ve run through the fundamental types of a car loan. Then we touched upon two loan types that branch out from the basic loan types and offer advantages to specific buyers. In the end, there are dozens of loan variants out there that are secured or unsecured and have different interest rate computations.

Thanks for checking out this post; we hope you find it helpful! If so, why not check out our main blog for more informative pieces.