Unsecured personal car loans, when you should and you shouldn’t

Unsecured personal car loans, when you should and you shouldn’t. Choosing with type of car loan is best for you is no easy option. There are so many choices. You can go for a secured car loan, a home equity loan, a debt consolidation loan. You can even put it on your credit card. So why should you, and why shouldn’t you choose an unsecured car loan. Once you understand the meaning behind these terms you will see that this title is misleading. All things equal you definitely want to choose an unsecured personal loan for your car loan. However things being like they are, it is never so simple. There a few factors to take in to account. In order for these factors to be meaningful some definitions of the main variables in car loans is required. We will start with the terms secured and unsecured loans and their basic specifications.  We will continue to define the terms interest rate and tenure. Finally we will round up our arguments by answering our initial question, when you should and shouldn’t get an unsecured personal car loan.

Secured Car loans.

Secured car loans are car loans that are guaranteed by some kind of security. This means that if you don’t pay your loan fees and installments you will be required to hand over the security on your loan. For instance you might ask for a secured car loan on your house or a car. If you fail to pay your car loan you will be required to either sell your home or car (depending on which of them you have given as security) to find the cash to pay for your loan or simply hand over the car or house for the bank to sell.

Unsecured Car loans.

Unsecured car loans are quite predictably the opposite of secured car loans. The only security for your bank with this type of loan is your promise, your word that you will pay it. I don’t need to tell you that these loans are risky for banks and lending companies, which need to take a calculated guess and risk on all the borrowers they approve.

Interest Rate

The interest rate of a loan is the percentage of the loan paid to the lender as a profit for the service of providing money. For instance if lender A lends 1000 dollars to borrower A at 10% yearly interest. The borrower A will pay 100 dollars interest the first year of the loan.

Tenure

Tenure is the length of a loan in months or years. The longer the tenure the more expensive the car loan.

So when should you go for an unsecured car loan. The quick answer is whenever you can and can afford it. Because unsecured car loans are more risky for the lender, the interest rate is increased to reflect that fact. However with unsecured car loans there is never the risk of losing your home or car. So if the interest rate or tenure or not too high or long, an unsecured personal car loan will surely be your best option.