Types Of Auto Loans
Understand Your Options for Your Bad Credit Auto Loan
Auto loans are helpful for people who need to purchase an automobile (or more), but cannot make the full payment right away. Many lending agencies offer such loans for the purchase of used cars, lease buyouts, or can help refinance a pre-existing car loan.
Auto Loan Types: Simple Definitions to Help You Understand the Different Ways Your Car can be Financed
If you enter "Auto loans types" into Google, you will be overwhelmed by the different kinds of auto loans out there. Let us examine some of the most common types of auto loans available. Note that there will be commonalities among some of them.
A pre-computed loan is a basic principal and interest loan. In this, the interest and principal payments are pre-calculated before a borrower and lender agree and sign the financial paperwork. A big disadvantage of this loan type is that you cannot make car-payments in advance and expect to forego interest payments.
A simple interest loan is similar to the pre-computed loan, but with one major difference. Here, interest is charged every day on the basis of the balance you currently owe. Therefore, the faster you pay you balance off, the less interest you'll pay overall. Thus, a simple interest loan with no prepayment penalties will be beneficial for those people who pay in advance.
A secured loan is a loan in which you offer collateral against the loan. The collateral is usually another vehicle (and in many instances, the house of the borrower). Note that if you don't pay off the loan, the lender can take possession of the property you put up as collateral.
Unsecured loans are usually the most preferred type of auto-loans. Here, the lender provides the loan on mere faith that you will keep your word. Given the risk involved, these loans are accompanied with high interest rates.
A lease buyout loan is a viable option for those borrowers who are not going to be able to buy out the remaining amount on their car (lease). Here, a commercial lender will pay out the remainder of the balance on their lease. After that, the borrower will need to make regular payments to the lender.
Car refinance loan, simply put, can be considered as a loan upon a loan. This type of auto loan will be helpful for borrowers who may end up unable to afford pay the high instalment amount. Note that while a car refinance loan may lower the instalment amount, the lender may slightly raise the borrower's interest rate.
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