Buying a car with an unsecured loan can be good or bad. This all depends on your situation, and there is no right or wrong answer to this question. With interest rates being as low as they are right now, buying a car with a personal loan is a very attractive option. Not only can you get a decent rate, you also have the advantage of the car being paid for outright. This means you don’t have to keep full coverage insurance. Also, depending on the purpose of the car, having an unsecured loan will make reselling the car easier because there in no lien on the vehicle.
All interest is, in a nutshell, is a fee for borrowing money. You pay this fee over time and in small increments, but it adds up over the course of time and can cost hundreds or even thousands of dollars. This is why it’s very important to shop around with different banks and finance companies for the best financial deal.
If you are buying a brand new car, and doing so with out securing the car as collateral, you may want to keep full coverage insurance on the vehicle. If you have a good driving record the difference between full coverage and liability converge is usually not enough to warrant the lesser of the two. If you don’t have a good driving record the difference can be substantial and you may be able to save money by carrying just liability. However, you must keep in mind with liability insurance; your car will not be fixed if you are in an accident that is deemed to be your fault. This, of course, varies from state-to-state and you will need to talk to your insurance company before you make your decision.
Buying your car with an unsecured loan also gives you the advantage of not having a lien. This means in the event you need to sell the car you do not need to use the proceeds to pay off the loan to release the title to the new buyer. This makes the vehicle a more attractive purchase option to any interested buyers. However, if your plan is to buy another car keep in mind you still have the loan payment if you choose not to pay if off.
The real questions needing answers are: “What is your goal in this situation?” and, “What year and type car you are purchasing?” This information is important because the answers can affect the banks decision, what insurance rates you will pay and what interest rate you can secure. If you are buying a brand new Ford Mustang and you’re a 19-year old college kid you will have a whole different outcome then if you are a 45-year old established businessman (or women) looking to purchase a two-year old Toyota Camry.
The 19-year old college student trying to buy a brand new sports car will probably need a co-signor and in the unlikely event he doesn’t need a co-signor, he probably isn’t going to have an extensive credit record or driving record and will pay a higher interest rate and higher insurance premiums.
The 45-year old business person buying a two-year old Toyota Camry has the advantage of an established credit history and an acceptable driving record. This is working with the supposition this person has a good credit rating and a clean driving record.
In summary, your situation will determine what is right for you. You have to look at the pro’s and con’s of both sides and make your decision based on your needs and what you can afford.