Home Debt Relief Personal Loans Refinance Home Equity Loans Loan Modifications Credit Repair Insurance Bankruptcy and  Foreclsoure

Auto Secured Loans

Digg  Add to del.icio.us  Facebook  StumbleUpon  Technorati   Reddit   MySpace

In these troubled economic times, banks are tightening their lending policies, making it difficult for many people to get approved for even small personal loans. An auto secured loan can be a viable alternative to procure a loan at reasonable interest rates.

What is an Auto Secured Loan?

All loans fall into two broad categories: secured and unsecured. An unsecured loan, also known as a "signature loan", relies solely on the good name - and favorable credit score - of the borrower. This type of loan is a bigger gamble for lenders, who charge a higher interest rate to compensate for the higher level of risk.

A secured loan, on the other hand, uses a piece of property as collateral. The collateral can be claimed by the lender if the consumer is unable to repay the loan. Banks are more willing to lend money when a loan is secured, especially to people with less than perfect credit histories. This type of loan will generally have a significantly lower interest rate.

An auto secured loan is simply a personal loan secured by an automobile. The loan may be used for any purpose. The borrower offers up his or her vehicle as security or collateral on the loan, so although the original owner keeps the title and possession of the vehicle, the lender is listed as a lien holder on the title. The lien must be removed before the vehicle can be sold, and if the borrower is unable to repay the debt, the bank can seize the automobile and sell it to recoup their losses

What Makes an Auto Secured Loan Unique?

There are a couple of notable details that distinguish an auto-secured personal loan from other types of financing.

  • A car or other automobile can only be used as security on a loan that is less than the value of the car. Obviously, a $5,000 car doesn't provide sufficient security for a $25,000 loan. Banks and lenders look closely at the ownership, age, and condition of the car when determining the loan amount.
  • If you're interested in financing a new car with an auto secured loan, you'll more than likely need a good down payment. If you have a premium credit score, you may be able to get a loan for the total price of the car, but most lenders will only offer a loan for the value the car had when you drove it off the lot. With the immediate depreciation that occurs with new car purchases, your loan may only cover 70-80% of the vehicle's original price.

Advantages and Disadvantages

An auto secured loan is a great way to take advantage of an asset that usually goes untapped, especially when circumstances make it difficult to qualify for other types of loans.

If you need a small loan and know you'll be able to repay it on schedule, using your car as collateral is an effective way to get some quick cash to cover unexpected expenses or to get some added security in tight economic times. A loan secured by your car can also be a smart way to pay for a new vehicle, as it usually costs less in interest than normal auto financing.

Make sure you read the fine print and look into the reputation of a lending institution before signing any loan documents. Asking questions about late payment charges, how early payments are treated, and what happens if the car is stolen or totaled can save significant time and trouble down the road