When it comes to paying for an automobile, most people do not have enough money saved to cover the entire cost. The average vehicle buyer is forced to take out an auto loan through a car dealership, bank, credit union or other lender. There are plenty of advantages to each type of auto loan.
Car Dealership Auto Loans
The majority of car buyers finance the purchase through a car dealership auto loan. Most people do not want to deal with a third-party for such a large purchase, so they commit to the dealership’s financing department for a loan. The benefits of this type of auto loan extend beyond consolidating every aspect of the vehicle purchase with the dealership. Dealerships are willing to discuss the terms of a potential auto loan during extended hours on weeknights and weekends. This is the type of flexibility that traditional banks and credit unions do not provide.
Furthermore, auto dealers typically offer several different financing options as they have established relationships with all sorts of different banks and finance companies. After all, it is always nice to have a choice rather than being strictly limited to a single financing option. Dealerships are also commonly favored as they offer special programs with low interest rates, manufacturer endorsed loans or incentive programs. Though these special programs are usually limited to specific vehicles or have nuanced requirements such as a high credit rating, a considerable down payment or a short contract length, they almost always benefit the buyer in the end.
Direct Lending From a Bank, Credit Union or Finance Company
Some Tesla shoppers prefer to obtain a loan directly from a bank or credit union. This type of financing is usually secured before the buyer makes an offer on the vehicle. It provides the buyer with advanced knowledge of the loan’s interest rate and other terms so he can shop without financing concerns. Some auto shoppers prefer this type of loan as it allows him to “test the market” so to speak. Buyers can apply for direct loans from local banks, credit unions and other finance companies in their quest to obtain the lowest possible interest rate, the most money and the ideal repayment terms. Oftentimes, making such an effort to pinpoint the best direct loan will result in loan terms that are significantly better than those provided through auto dealerships.
Secured and Unsecured Auto Loans
If your participation in a NY defensive driving course has inspired you to upgrade to a new vehicle, you should make an effort to understand the difference between secured auto loans and unsecured auto loans. Secured auto loans require that the lender place a lien on an asset you own. In most instances, the lien is placed on the automobile you intend to purchase. A lien can also be placed on a home or another vehicle owned by the borrower. The purpose of the lien is to empower the lender to repossess the asset in the event that payments are not made according to the loan’s terms. This way, the lender assumes less risk and the borrower obtains a lower interest rate.
An unsecured auto loan does not involve a lien. Take out an unsecured auto loan and the lender will not be able to repossess any of your valuables. If you do not adhere to the loan’s terms, the lender will have to pursue the unpaid portion of the debt through legal means outside of repossession. The downside to an unsecured auto loan is that it typically has a higher interest rate than a secured auto loan.