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What are the different types of auto loans?

2 minutes minutes read

Here you can see how an auto loan works, but below we explain a few different types of auto loans.

Auto Loans

  • Secured auto loans

Most of the time, auto loans are secured and you have to put something as a lien (your house, a car, etc.). This type of loan works for both new and used cars. You will usually get a loan where you start paying small amounts for the first couple of years, followed by one large payment at the end. This is when you can decide to continue to do the payments and keep the car, or you can trade in the car for a different one. You will have a lower finance charge, but if you miss your payments, you run the risk of losing the asset you put as a lien on the loan.

  • Unsecured auto loans

For this type of loan, you get the advantage of deciding how you use your money as you have no restrictions, but you have a higher finance charge compared to a secured loan. You should also know that your car does not qualify as collateral.

The most common type of auto loan has a simple interest rate. This means that the interest is calculated on a periodic basis (usually monthly), and it will be calculated based on the remaining amount of principal on the loan.

Here you can see how an auto loan works, but below we explain a few different types of auto loans.

Auto Loans

  • Secured auto loans

Most of the time, auto loans are secured and you have to put something as a lien (your house, a car, etc.). This type of loan works for both new and used cars. You will usually get a loan where you start paying small amounts for the first couple of years, followed by one large payment at the end. This is when you can decide to continue to do the payments and keep the car, or you can trade in the car for a different one. You will have a lower finance charge, but if you miss your payments, you run the risk of losing the asset you put as a lien on the loan.

  • Unsecured auto loans

For this type of loan, you get the advantage of deciding how you use your money as you have no restrictions, but you have a higher finance charge compared to a secured loan. You should also know that your car does not qualify as collateral.

The most common type of auto loan has a simple interest rate. This means that the interest is calculated on a periodic basis (usually monthly), and it will be calculated based on the remaining amount of principal on the loan.

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Arturo Mendez

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