LeoGlossary: Auto Loan
Auto loans are loans used to finance the purchase of vehicles, such as cars, trucks, or motorcycles. They are secured loans where the vehicle itself is used as collateral for borrowing. The borrower has to pay back the loan within a given period( usually 3-5 years) and in full. If he fails to do so, then the lender will try to repossess the vehicle.
Auto loans are often secured while unsecured loans revolve around certain types of loans, like credit card debt or personal loans, which often carry higher interest rates as the lender is taking on more risk.
A secured auto loan is when you use the car as an asset against which you take out the money.
You have to make sure that you repay the borrowed funds to avoid losing your car in case of defaulting on payments. In most cases, the interest rate charged by lenders for these types of loans is slightly lower than for unsecured auto loans.
However, if you repay the loan within a shorter time limit, then there are chances of getting better rates and terms.
Although auto loans are secured loans lenders still rely on your credit score and history to determine whether you are eligible or not. Lenders check your credit report to see if you have had a good track record of repaying previous loans on time. This enables them to assess how likely it is that you will repay the loan in the future.
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