Difference Between Secured Car Loans And Unsecured Car Loans
Deciding which loan to take when you are on a stage in life that getting a loan is also necessary and you are confused is very difficult time to face
. But this article will definitely help you in deciding that whether you take secured car loans or unsecured car loans. There are many factors which affect this question but the differences which are the basis between the both types of loans can simplify it.
So lets take start from the first difference that is of collateral. In simple terms, collateral is anything or any asset that is used for security against the amount of loan which is given to the borrower. So when you apply for car loans, you have to present any fixed asset of some value to the lenders or the banks which are giving you car loans. The amount of equity invested in your car is the basis which will determine that how much loan is given to you. Where as in case of unsecured loans, there is no such option which can bother you. The presence of any car is not necessary and you only need to show your credit reports and your credit history. The authorities will decide that whether loan should be given to you or not.
Another important point that differentiates between the secured loans and unsecured loans is that of promissory note. In car loans, the promissory note is used which is having important details of the car like brand and year of manufacture of the vehicle and vehicle identification number etc. whereas in unsecured loans, there is no need of such note or details.
If you fail to pay the amount of loans within specific period of time in full, they take away your car. In case of car loans, there is no such messy problem. The unsecured car loans free you from these tensions but different types of tensions come with them too. They are also having pros and cons as well. But the studies have shown that car loans are more preferable.
Another very main difference that makes the both types of loans much different is the rate of interest applied to the amount of loan given to the borrower. In secured car loans, you give your vehicle documents as security against the debt. Whereas in unsecured loans, there is nothing like security or collateral and the banks or lenders entirely trust on your credit reports and history. So the rate of interest is higher in case of unsecured loans as the risk is higher for the banks.