Buying a new car is often the second-largest purchase that someone makes behind buying a home. As such a large purchase, most people are unable to pay for the total cost of the car upfront, which is why it is important to be aware of the different loan options that you have when it comes to financing a new car. Here are the two main options that are available to you along with their pros and cons:
A secured loan is a type of loan which is secured against a personal asset, such as your property. This means that if you are unable to keep up with repayments, your property or other asset put up as collateral could be at risk of repossession.
While a secured loan may sound daunting, this can be an excellent option when it comes to financing a new car. This is because secured loans are easy to get approved for as they are less risk for lenders, so they are an option if you don’t have a great credit score (they can also help to rebuild your score). On top of this, you can usually borrow larger amounts with low interest rates so they make sense for large purchases.
Obviously, there is the risk of putting your property or another asset up as collateral. This is why it is so important to make sure that you can easily afford repayments before entering a secured loan agreement.
The other main option is an unsecured loan. As you might imagine, this is a type of loan that requires no collateral to be put up. While this has its benefits, it does also mean that you typically need a good credit score to get approved and interest rates tend to be higher because it is a greater risk for lenders.
Repayment terms of unsecured loans tend to be more flexible than unsecured, which can make it easier to find a repayment plan that works for you.
What is Best?
Ultimately, the best option will depend on your circumstances and credit rating. Secured loans are best for those that do not have the best credit rating and can often work out to be cheaper, but there is always the risk of putting an asset up as collateral. For those in the position to do so, an unsecured loan can be smart as it is less risk and can be more flexible.
Buying a car is an enormous financial decision to make and it is important that you know what your options are in terms of financing the purchase. Secured and unsecured loans are often the best solution, but it is important to be aware of the pros and cons and to consider your own circumstances before entering an agreement.