Owning a personal car is necessary for more convenient modern living. People use cars to get to and from places of work, stores, and social activities. Unless you prefer public transport, having your own car can significantly enhance your privacy.
While that’s the case, purchasing a car is one of the most expensive investments. You only get to own one if you have enough savings—or so it seems. But the good news is that you can consider several other financing options to fund the car purchase. One of the most common options is to apply for a secured loan.
An Overview Of A Secured Car Loan
Generally, a secured loan is when the financial institution has security over the item or asset. In other words, it refers to a loan taken with collateral provided in exchange for money. In this case, the car itself will be used as security or collateral for the loan. You should repay the borrowed money plus the accrued interest within the agreed period. If you fail to sustain your loan repayments, the lender has the right to repossess the car.
You might think that getting a secured car loan is complicated, but that isn’t the case. You can opt for online car financing platforms and complete the process from the comfort of your home or office. Besides, getting a car loan online gives you more freedom to compare the various providers and select the most suitable for your needs.
Pros Of Secured Car Loans
There are several benefits to secured car loans. They include the following:
- Longer Repayment Period
One of the most significant benefits of secured car loans is that they can provide longer repayment periods than unsecured loans. Most of the lenders have loan terms of up to 60 months. But you need to know that the longer the repayment period, the higher interest you’ll pay on the loan. However, it can be a great way to own a car if you don’t have a high income.
- Lower Interest Rates
Unlike unsecured loans, secured car loans attract a lower interest rate. The interest rate on any loan indicates how much the lender is risking to lend you money. Therefore, unsecured loans have a greater risk to lenders. When you secure a loan with a car, it represents less risk to the lender. This is true since they can repossess the vehicle if you fail to pay your monthly installments.
- Easier To Qualify
When applying for unsecured loans, most financial institutions will require you to have a good credit score. It will be hard to qualify for a loan with a low credit score. A secured car loan can be a good option even if you don’t have a good credit score. You’ll easily qualify whether you have a high-paying job or are self-employed since lenders will be less bothered by your creditworthiness.
- Borrow More
Providing collateral for the loan allows you to qualify for a higher amount. Some financial institutions will let you borrow up to 100% of the car’s value. On top of that, they can lend you money to cover other associated costs, including insurance coverage and car tracker installation. This implies that you won’t have to make any downpayment, which can be great if you don’t have cash.
- Flexibility In Repayment
Another great benefit of secured car loans is the flexibility of payment. You can choose your preferred payment terms, including monthly payment and duration.
But you must note that not all lenders allow flexibility regarding secured car loan repayments. Before applying for a loan, you need to know your preferred lender’s terms and conditions.
Cons Of Secured Car Loans
Although there are several benefits to a secured car loan, it also has its other side of the coin. Some of the disadvantages of these loans include the following:
- You Can Lose The Car
Remember that you’ve secured the loan using the car you’re buying. If you fail to make your monthly installments, the lender has the right to repossess the vehicle. And while the lender may agree on a new repayment plan, you need to know that if you continue defaulting, you’ll ultimately lose the car.
- The Car May Lose Value
Like most other assets, most cars start to depreciate once purchased. In some cases, the amount you owe the lender can be way more than the actual value of your vehicle at the time of purchase. And that may pose a big problem, especially if you want to upgrade the car before you finish repaying the loan. The seller or lender may require you to pay more money to cover the difference between the value of the old car and the new one.
Takeaway
One of the best options to finance a car purchase is to apply for a secured loan. This involves borrowing money from financial institutions using the vehicle you want to buy as security for the loan. As detailed in this article, secured car loans have several benefits and drawbacks. However, the pros are more than the cons. Therefore, you can consider this option to buy your dream car.
