Vroom Vroom! The Different Types of Car Loans

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Between interest rates, monthly payments, and potential repossession, there is a lot of painful details to getting a car loan.

That means you have to play it smart. Being smart about a loan means doing a good amount of research.

There are many types of car loans, and each of them has positives and negatives that apply to your finances and needs.

Let’s walk through the basics types of car loans, and what might work best for you.

The Types of Car Loans

There are many types of ways to get the money you need for that car of your dreams.

Your credit, personal income, and job status can all be factors that determine how you can apply for a loan of what kind of interest rate you may get.

For now, we are looking at the types of loans and financing that you can look for when buying a car.

  1. Secured Auto Loans

This is one of the most common of vehicle loans because it centers around the purchase of an item for collateral.

The idea is that if you ever fall behind on your payments of the loan, the lender has the right to repossess the vehicle. Once you have completed your payments, their right to repossess disappears and the vehicle is yours.

The use of collateral makes the loan secure. This helps keep interest rates low, as the bank has a more solid risk-avoidance.

  1. Unsecured Auto Loans

This is the other side of the coin from a Secured Auto Loan. The lender does not have the right to the vehicle, and as such cannot repossess it if you fall behind on payments.

This means that the lender must find other ways to keep their investment return high. In this case, it is the high interest rates that make up for it.

The cost and benefits of each of these pair depend on how well you can make payments.

  1. Simple Interest Loans

Simple Interest loans follow a lot of the basic guidelines of loans but instead accrue interest at a much faster rate. This rate can often be daily.

In exchange for this increased interest rate, the borrower is free to pay in larger chunks at a time.

This type of loan is best for people who have a sizeable portion of their income they can devote towards paying off the loan. If you will only be making minimum payments to the loan, the internet can overwhelm you.

  1. Pre-Computed Auto Loans

As with the unsecured loan being an opposite to the secured loan, the pre-computed auto loan is the opposite of a simple interest loan.

With a pre-computed auto loan, you will have a set schedule on payments. Each payment has a certain percentage of interest and principal balance included. Paying extra only front loads the expense.

This loan is better for those who do not have the burst of income needed to pay off a simple interest loan. If you have a fixed income or prefer a more stable repayment method, this loan may work best for you.

  1. Direct Financing

With direct financing, you are dealing with a very specific deal granted for your car purchase.

Banks and other lenders will often offer a loan that is for the vehicle you are trying to purchase and nothing else. The specifics of this deal allow for special discounts on either the payment plans or the interest rate.

If you only need financing for a car and nothing else, this kind of deals can be ideal. They may include a lot of requirements you have to follow, though. This may include what kind of car is available with the loan.

  1. Indirect Financing

As again, we have the opposite direction to the previous loan. Instead of differences in how they work, indirect financing only has a different source.

Indirect financing is when the dealership themselves offer a loan through an associated lender for the specific car you wish to buy. This is often due to the dealership having either a partnership or a private lender in their employ.

The ease and simplicity of this arrangement may add a few extra percentages to an interest rate or a payment, but the convenience and security of knowing you have a loan can be powerful

  1. In-House Financing

In-House financing is a version of indirect financing that takes out an associated lender altogether. The dealership provides a loan for you as you purchase the car.

The dealer may also often wave bad credit and other issues to make this loan. This will often lead to higher interest rates.

  1. Lease Buyouts

Leasing a car is a very different process compared to a car loan. You pay a fee every month similar to car loan payments, but when the lease ends, the car is not yours.

There is a process that can get the best of both worlds. Lease buyouts change the hands of the lease ownership from the dealership to a lender. This allows you to then pay off the car through the new lender for eventual ownership of the car.

This process is complex and isn’t cost-effective. If you are already in a lease, though, it can be a great way to keep the car you always wanted.

The Right Loan for You

Even with this list, it can be hard to map out the exact loan that can work best for you. Look at all the details of what you expect from a loan and what you are willing to do to get the most out of your money.

Your budget is the biggest consideration. Payments from your car loan, as well as potential insurance and upkeep costs, need to fit into your budget without too much strain.

The type of car you need and what you need it for can be a heavy consideration.

If you only need it for small and infrequent commutes, you might be more open to a used or less gas efficient car. For frequent commutes or heavy toil, a newer or more gas efficient car might be better.

The Uber Consideration

If you are an Uber driver, there are a lot of extra thoughts to consider. Read here for more information on Uber driver loans.

Getting Your Finances Together

Finances are never an easy thing. When it comes to the car buying process, the types of car loans are only the beginning.

We here at Private-Bad-Credit-Lenders are here to guide you through all the woes of a variety of financial issues. For more information on loans, click here.