Buying a new vehicle is a great way to get reliable transportation no matter where you go. Currently, Americans owe more than $1.18 trillion in auto loans, and the number is climbing.
Luckily, you don’t have to get financing directly from a car dealership in order to purchase a new car.
Personal auto loans offer another way to obtain financing for your new car, so read on to learn more about the variety of types that might be available to you.
A secured auto loan is the most common form of loan for both new and used vehicles in the United States. These loans are secured by a lien on the vehicle and you can’t transfer the title until you’ve paid off the loan.
If you’re late on payments, your lender can repossess your car. The lender can also sell the vehicle in order to recover any additional money you owe on the balance.
These personal auto loans are usually offered by credit unions and banks. Since the loan is tied to the vehicle, you may get the best rates and terms with a secured auto loan.
Borrowers with a high FICO score or credit rating tend to get the best deals and the best rates. Some auto manufacturers also offer low rates on cars for those with good to excellent credit.
As for the best rates, you may find that the lower rates are available on newer cars. Used vehicles may have a bit higher rate, depending on the year the vehicle was made, the mileage, and whether it’s a certified pre-owned car.
An unsecured loan is not tied to an asset that can be repossessed, like a home or a vehicle. Some examples of unsecured loans include student loans, credit cards, and many basic personal loans.
If you’re looking for a vehicle that’s for sale by the owner, an unsecured personal loan might be a good choice. It may also be better if you want an affordable car that’s lower than what a traditional bank would finance.
This option also works best for buyers looking to purchase antique cars or collector vehicles. In most cases, these types of cars won’t qualify as collateral on a secured loan. If you’re unsure, check with your lender to determine what the restrictions are regarding age and mileage on vehicles that can be secured as collateral.
When it comes to getting loans for buying a car, you may hear the terms direct and indirect financing. Let’s break down the differences between the two.
Direct financing means that you’ll communicate directly with the borrower. These loans are usually given through credit unions, banks, and online lenders.
Your interest rate through direct financing is typically based on your credit rating and history. In this case, it’s recommended that you apply with the lender directly, secure your own financing, and then visit a dealership.
Indirect financing is usually arranged between you and the dealer. You’ll apply through the dealer’s finance office which might shop your application among several different lenders.
You can also get financing through the actual auto manufacturer, like Ford or Toyota to get lower incentive-based rates. It’s important to note that indirect financing might not secure you the best rate. Some car dealers increase the borrower’s APR and keep the difference for themselves.
The term title loan refers to a loan that is secured by your vehicle title so you can get cash in hand. Take note that most car title loans come with extremely high-interest rates.
If you don’t repay your title loan on time, the lender can repossess your vehicle. While these types of loans aren’t used to buy new vehicles, consumers should know that using them could put your current car at risk.
It’s best to stick to a personal loan if you need extra cash, even if it’s not for a new vehicle. Title loans can be expensive and can also put your vehicle at risk for repossession.
When you buy a house, the mortgage lender requires quite a lot of information in order to process the loan. The same applies to a personal auto loan, but you won’t need to supply quite as much.
In most cases, you’ll need to provide proof of income and employment to the lender or car dealer. This shows that you’re acting in “good faith” and that you’re capable of repaying the loan.
Most borrowers must also be 18 years of age or older. Be prepared to provide your driver’s license or some other form of official identification. Not only will this prove your age and address, but it also protects you against identity theft.
Some lenders don’t have a minimum credit score in order to secure an auto loan. However, remember that the higher your score is, the lower your APR will most likely be.
If you want to shave time off sitting in the dealership office, look for a personal auto loan you can apply for online. Most online lenders provide you with an answer within minutes.
Whether it’s secured or unsecured, direct or indirect, knowing more about the different types of personal auto loans will help you prepare. With a bit of research, you can find the right type of loan to suit your vehicle-buying and financial needs.
If you’re ready to apply for an auto loan, be sure to visit First Financial or contact our help desk to find out more today.
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