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Understanding the Different Types of Personal Auto Loans

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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.

Secured Auto Loans

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.

Personal Auto Loans: Unsecured

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.

Direct vs. Indirect Financing

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.

Title Loans

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.

What do You Need for a Personal Auto Loan?

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.

Find the Right Loan Today

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.

The Complete Guide to Choosing Auto Loan Providers: Everything to Know

The Complete Guide to Choosing Auto Loan Providers: Everything to Know

Doing research is important when choosing auto loan providers Unfortunately, there are over 6 million car accidents each year in the United States. Not all of these are minor, either. It’s not uncommon for people to deal with significant pain after auto accidents.

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The good news is that many of these accidents are preventable by exercising safe driving habits and using a reliable vehicle. More often than not, buyers find themselves applying for auto loans so they can afford the car that’s right for them.

Choosing auto loan providers, though, isn’t always as easy as it seems. We’ve put together a brief guide that details how you can narrow down your potential loan provider options.

Let’s dive in.

Check Out Their Online Reviews

You’ll want to make sure that you’re reading online reviews as possible.

This includes scouring through the provider’s website, social media platforms, and any other independent review sites. You should also check out the Better Business Bureau’s (BBB) rating for the provider.

All of this research will give you a good idea of what other customers have experienced with the provider in terms of customer service, loan options, and repayment terms.

Look For Red Flags

When you’re reading through reviews, be sure to look out for any red flags that may pop up. These can include complaints about hidden fees, difficulty getting in touch with customer service, or a lack of transparency when it comes to the loan process.

If you see any of these red flags, you’ll want to move on to another provider.

Get Quotes From Multiple Providers

Don’t just settle on the first auto loan provider you come across.

Instead, take the time to get quotes from multiple providers. This will give you a better idea of who can offer you the best interest rates and repayment terms. Be sure to compare these offers side-by-side so you can make the best decision for your needs.

Read the Loan Terms and Conditions Carefully

Once you’ve chosen a loan provider, it’s essential that you read the loan terms and conditions carefully. This includes the interest rate, repayment schedule, and any fees or penalties that may be associated with the loan.

Unfortunately, many buyers neglect to do so when looking to secure financing. This can lead to a large number of complications in the future, such as being stuck in an agreement that you cannot comfortably manage.

Is It Possible to Get a Loan if I Have Bad Credit?

If you don’t have good credit, it may be difficult to get an auto loan from a traditional lender. However, there are still options available to you.

There are a number of subprime lenders that specialize in providing loans to buyers with bad credit. These lenders will typically offer higher interest rates and less favorable loan terms. However, they can still provide you with the financing you need to purchase a vehicle.

Keep this in mind if this situation applies to you.

What Is the Typical APR of an Auto Loan?

The typical APR of an auto loan will vary depending on a number of factors, such as your credit score, income, and the amount you’re looking to borrow. However, the average APR for an auto loan is around 4%.

If you have bad credit, you can expect to see an APR that’s closer to 10%. The good news is that you can likely refinance your loan in the future.

How Long Does It Take to Get Approved For an Auto Loan?

It typically takes around 24-48 hours to get approved for an auto loan. However, this timeline can vary depending on the lender you’re working with.

If you need financing quickly, be sure to communicate this to your lender so they can expedite the process. Oftentimes, buyers run the risk of missing out on purchasing the vehicle they want if they take too long to secure financing.

Can I Pre-Qualify For an Auto Loan?

Many lenders will allow you to pre-qualify for an auto loan. This means that they’ll give you an idea of how much you’re eligible to borrow based on your credit score and income.

Keep in mind, though, that pre-qualifying for a loan is not the same as being approved for a loan. Once you’ve found a vehicle you’re interested in, you’ll still need to go through the formal loan application process.

What Is the Average Term For an Auto Loan?

The average term for an auto loan is around 60 months. However, this timeline can vary depending on the lender you’re working with.

Some lenders may offer loans with terms as short as 24 months, while others may extend the term up to 84 months.

How Much Should My Down Payment Be?

The size of your down payment will vary depending on the amount you’re looking to borrow and the terms of your loan.

However, most lenders will require a down payment of at least 10%. If you have bad credit, you may be required to put down 20% or more. If you have stellar credit, you may be able to put down less than 10%.

Woman with key in hand choosing auto loan provides.

Choosing Auto Loan Providers Doesn’t Have to Be Complicated

Although choosing auto loan providers might seem difficult to understand at first, it’s much easier than people think. Ensure that you keep the above guidelines in mind when moving forward so you can avoid mistakes.

Looking for other info about how we can help you out in the future? Feel free to reach out to us today to learn more.


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