How Does a Secured Car Loan Work?
Selecting the right auto financing option is a key part of buying a new car — and it can be a challenge if this is your first time applying for a larger loan. Before you sign on with a lender, be sure to investigate your options carefully to determine which route best suits your needs and financial situation in Mesa.
In the guide below from the Cactus Jack's Auto finance center, we’ll go over how a secured auto loan works, what a secured auto loan is compared to an unsecured auto loan, and any secured loan criteria you’ll need to know about when you apply.
What is a Secured Auto Loan?
If you’re unclear about how a secured auto loan works, you’re not alone! We hear often from Surprise-area car-buyers who ask us about the difference between an unsecured auto loan and a secured auto loan. When you take out a secured auto loan, you’re agreeing to allow the lender to use your car as collateral in case you’re unable to make a payment. The lender is protected from loss by the value of your vehicle, because they can repossess it should you fall behind on payments.
So, is a car loan a secured loan by default? Not always, but car loans and mortgages are the most common types of secured loan. That’s because they involve goods or property that can be repossessed if the secured loan criteria aren’t met at any point during the loan term. There are a few other differences to keep in mind as well:
Secured Auto Loans
- Typically available with longer loan terms
- Offer a fixed interest rate
- Easier approval, even with a low credit score
- Typically lower interest rates
Unsecured Auto Loans
- Typically available with shorter loan terms
- May offer fixed or variable rates
- More difficult approval process
- Typically higher interest rates
How to Get a Secured Auto Loan
If you’re applying for an auto loan with a bad credit score, choosing a secured auto loan can increase the likelihood of approval. That’s because the lender knows that your vehicle is backing the loan as collateral — so they’ll be more flexible when it comes to your financial situation. When you apply for a secured loan, criteria that the lender will look at include:
- Your credit history and credit score
- Your debt-to-income ratio
If you meet the secured loan criteria, you’ll be approved for a loan and the lender will determine your fixed interest rate. If you continue to make timely payments on your loan, the vehicle is yours to keep at the end of the term!
Get Approved for a Secured Auto Loan in Phoenix
Questions about what a secured loan is or how it works? Our friendly team of auto finance experts are happy to answer your car-buying questions. You can reach us at %%di_phone_number%%, or visit a location near you in Glendale today.