It might seem unreasonable to take an unsecured loan to buy a car when the same car you are buying can be used as collateral. However, when your vehicle is an essential tool for your work and contributes to generate income you might want to think again before applying for a secured auto loan.
The typical option is Secured Car Loans
Usually people apply for secured loans when buying a car since the car is a suitable asset for guaranteeing a loan. Thus, they can obtain finance at a lower interest rate by using as collateral the very thing they will buy with the money they get from the loan. It seems to be a great deal and it usually is. However, there might be some situations where the risk of repossession weights more than the benefit of paying less money in interests.
Are you prepared to Face the risk of Losing your Car?
Since with a secured loan, the car is guaranteeing the loan, the lender might claim the car if the borrower fails to make the monthly payments. You might think that this will not happen to you, but all of those who lost their car due to repossession thought the same. Losing your car can be extremely stressful and annoying but what if you use your car or other vehicle as a tool for your work?
You do not need to own a taxi in order to understand what this can mean. If you just use your car to visit clients across town or to deliver products you can easily understand how important your car is to you and how your income will be greatly reduced if you cannot use it. A reduction on your income can cause you to default on other loans or credit cards and lead you to bankruptcy. This is the main reason why you need to consider your options carefully when deciding between an unsecured or secured car loan.
Interest Rates are Not Such an Important Issue
The interest rate you will have to pay can be a little higher, but lately interest rates have dropped so you will be able to afford your loan payments without sacrifices and you can always refinance if you can obtain a better interest rate in the future. When it comes to interest rate your options are simple: you can opt for a fixed and safe interest rate or you can pick a variable interest rate which is usually lower but can rise if market conditions worsen.
You can Get an Unsecured Loan even with Bad Credit
There are bad credit unsecured loans available. Even if your credit report is full of stains, you can get finance without collateral. You might have to face higher interest rates but this kind of loans will contribute to rebuild your credit and you will be able to get a better deal the next time. You can always resort to a co-signer if you cannot get approved by your own. Lenders will reconsider their declines if someone else is willing to commit to pay in case you fail to meet the monthly payments.