If you're looking for car loans then you might prefer to find loans with lower interest rates than usual. It's obvious why, as your monthly repayments will be lower than they would be if the interest rate was higher.
Unsecured car loans are better for you if you're worried that you'll have financial difficulties in the near future as your car won't be held as collateral by your lender. This means that your lender can't repossess your vehicle if you miss a few payments, giving you time to recover and catch up with your payments and still have transport.
Another benefit of an unsecured car loan is that you can sometimes borrow more than the market value of the car. This is useful if you need to pay for registration and any modifications you need to make. However, you need to have excellent credit to be accepted for low rate car loans; remember, the lender is taking a risk by extending credit to you so they'll need to know they're not taking too much of a risk.
How Does an Unsecured Car Loan Actually Work?
Unsecured car loans work more like personal loans. You don't have to use your car or anything else as collateral (or security) against the loan. This is why you can borrow a little bit more to cover your insurance or first year's tax.
While you won't be restricted to cars with certain features, mileages and so on, you'll be subject yourself to stricter eligibility criteria. If you know that your credit rating isn't quite as good as it could be, then you need to bring it up.
Find Out What Your Credit Rating Is
Firstly, find out how buoyant your credit rating is, especially if you're looking for unsecured deals. If it's not glowing, look for ways to improve it before you apply for your loan.
You Might Want to Look at Personal Loans
Many car loan providers only offer secured loans, so if you find that the car loans you like are secured, it could be time to look at unsecured personal loans instead.
You should head to a comparison site to pick out the best cheap car loan for you; here's what to look out for.
The Interest Rate
Each loan has its own rate, so even if your credit rate is stellar, you might not get the cheapest car loan possible from a particular lender. This is one of the reasons you should spend some time comparing rates so that you can whittle down your best options.
Look at The Fees and The Comparison Rate
The additional fees are important, because they can rack up the monthly and eventual total costs of your loan. You should eliminate lenders with lots of fees, like establishment and maintenance fees, to bring your cost down.
The comparison rate includes the interest rate and the fees. The comparison rate will give you a better picture of the cost of the loan, including the fees that you may not have considered.
If you compare comparison rates side-by-side you'll see sometimes that the lowest headline loan rates sometimes have fees that bump the cost up, and therefore the comparison rate.
The Advantages of an Unsecured Car Loan
You don't have to put up any collateral so your application is faster and you won't get the car repossessed. You can take out a slightly larger loan if you need to pay for your insurance or for a respray on the car.
The Disadvantages of an Unsecured Car Loan
If you default you could end up receiving a court demand. You'll probably face higher interest rates than with a secured car loan because there's no collateral.
The higher risk the lender's taking in extending the loan to you may mean higher interest rates than you wanted, so you may have to look for a smaller loan than you planned for to keep your costs down.
Watch How Much You Borrow
While you can borrow more than the cost of the car with an unsecured loan, be careful you're not borrowing too much. When you do your car loans comparison, make sure you use a repayment calculator to find the right amounts and rates to make your payments comfortable each month. Remember that you'll be facing higher rates than you would do with a secured loan.
Should I Buy Dealer Add-ons or Are They Not Worth It?
Because, with an unsecured loan, you can borrow more than just the cost of the car, you might be thinking about taking out enough to buy some add-ons. Some extras are worth the extra cost, but there are some you should definitely swerve because even if you do need them, you could get them cheaper elsewhere.
Extended Warranty May Be Worth It
New cars have a manufacturer warranty, but if you're buying a used car, especially if it's a borderline beater, an extended warranty may come in handy.
This depends on the car you're buying. Again, if the car is not in its first flush of youth and you're not 100 per cent sure of its service history, then this sort of plan is a good idea, at least for the first couple of years.
If you're picking up a clunker or a car with an incomplete owner history, a prepaid maintenance plan may be worth the money. Otherwise, you might want to skip it.
Nitrogen Inflation is Best Avoided
While using nitrogen in your tyres can improve your performance a bit, it's not worth paying interest on.
Using an unsecured car loan is a faster, more flexible way to fund your next set of wheels. However, you need to understand how it's different from a secured loan and you may have pay a bit extra in interest.
Compare car loans from Australia's major banks, credit unions and other lenders here.
Compare personal loans from all of Australia's major banks, credit unions and non-bank lenders here.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.