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Secured or unsecured car loans

What to look for in car loans: differences and similarities

Different financial institutions have different requirements when a car loan application is submitted.

Generally, secured loans are easier to obtain as the car you are buying is a security for the loan. Also, the interest rate is lower and term and conditions of the loan are better. Essentially, the lower the risk to the lender the better loan terms for consumers can be offered.

Unsecured car loans on the other hand require higher interest rates and stricter loan terms and conditions as the lender cannot claim the car in the event that consumers default on their loans.

To calculate the true cost of each of those loans several other factors must be taken into account. The main additional cost is the loan application fee or administration fee. Most loans will have account keeping fee which may wary with different lending institutions. Also late payment fees may be included in your contract as well.

A car loan of $20,000 over 5 years time period with 10% interest rate will have monthly repayments of $425 or $98 per week. Over 5 years or 60 months your total repayment will be $25,500 plus loan application fee and any account keeping fees.

If the car is brand new your loan terms and conditions will be better. For the second hand car loans the lender may require you to take shorter loan time period, in this case your monthly repayments will be higher but you will achieve savings as your loan will be paid off sooner.

Both type of loans do not require a deposit. However by paying a deposit you will save money on your loan.

Registration, comprehensive insurance and loan insurance can be included in your secured loan. With unsecured loans you must pay for those costs separately.

Comprehensive car insurance is needed as apart of security for the loan and loan insurance is insuring the loan itself in the event that you may not be able to work and repay your loan.

Secured loans time period is from 1 to 7 years. You must have full comprehensive car insurance with secured loans. For unsecured loans full comprehensive car insurance is optional.

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