Car Finance | Car Loans | Car Loan Calculator

What is the real difference in cost and conditions between car loans that are secured or a unsecured personal loan and how that difference affects their loan and their repayments. Basically the difference is small in terms of the car loan details themselves, but is larger when the true cost of each is taken into account.

Before discussing secured and personal car loans in more detail, let's first have a look at the various components that determine the cost of your loan and of your monthly repayments. The cost of the car finance package is the total you repay less the amount borrowed. Hence, let's say you are repaying $20,000 at 12% interest rate over 36 months; you will repay at the rate of $664.29 per month. That would total a repayment of $23,914.44, and the cost of the loan would be $3,914.44 plus any set-up or administration fees. A car finance calculator will enable you to work this out for yourself.

An alternative to a car loan package would be car hire purchase (HP), where you hire the car over the repayment period and receive the title to the vehicle with your final payment. Until then the car belongs to the HP company.

However, most loans are either secured or unsecured, and not all lenders offer car loans that are unsecured so let's look at secured car finance first. Secured car finance is one whereby the lender offers the loan with the car as security. If you fail to make payments, the lender can sell the car to recoup their money. It is possible to get a secured car loan if the car is over a certain age, often 7 years, but you may find the loan term only being approved on a shorter term or not at all by using your home or some other form of security. These are not exactly classed as car loans. It is generally the car that is the security.

Secured car loans can include on-road expenses such as the registration, loan protection insurance for disability,death or unemployment and comprehensive auto insurance as part of the financing deal. Loan protection insurance makes sure that the finance is paid off in the event of your death during the loan period, and comprehensive car insurance is needed to make sure that the car is in good condition should it be needed to repay the loan in the event of you defaulting on your loan commitment.

This might all sound like doom and gloom, but these are conditions you see with most secured car loans, not only car loans. Secured car loans terms are from 1-7years, and the interest rate will be lower than that for an unsecured car loan where the finance company charges extra to compensate for their added risk. If you put deposit or trade amount off the car finance this will lower the repayments, or a shorter term, whichever you prefer.

You could also apply a balloon, which is an amount borrowed where you pay interest only and finalised the principle when finalising the loan. This is popular by those whose income will increase over the period, and they will be in a better financial position to pay a lump sum in 3 - 5 years time. This too results in either a cheaper repayment per month or a shorter repayment term.

If you are buying a used car, your car loans interest rates can be priced very differently according to the car finance company and the age of your car. Many will charge higher interest rates, and the current credit crisis has changed the outlook of many lenders to unsecured car finance in particular. Many no longer offer unsecured loans due to the increased risk in the current economic climate.

However, they are still available, and some online car finance brokers can put you in touch with a choice of lenders that are still willing to offer you an unsecured car loan. In addition to the interest rate on such loans, you should also compare the fees charged, since they can involve a considerable outlay for you before you get the loan.

The major differences between secured and unsecured car loans, therefore, can be summed up as:

Secured finance are more affordable to repay, with generally lower rates.

Secured loans demand fully comprehensive car insurance, while unsecured financing does not.

Both finance packages could require death insurance cover for the loan, but secured car loans are more likely to.

You can sometimes include comprehensive insurance, registration and other costs in the secured loan, but with an unsecured car loan you must include the the costs on top of the amount borrowed.

Fees for unsecured car loans can be noticeably higher than for secured car loans.

Not all lenders will offer unsecured car loans.

There few doubts that if your car is young enough to be given a loan with the car as collateral, then that should be your option. You might be able to arrange a secured finance for an older car with your dwelling as security, but you will have to make sure to maintain the payments since lenders are becoming unsympathetic in the current economic down turn.