Whereas persons are looking forward to apply for car loans, the auto loan companies are repositioning themselves in line with the needs and expectations of the consumer. The financial institutions are devising appropriate ways to enable their clients have an array of alternatives to which kind of auto loan they would prefer. Unsecured car loans are those that do not require collateral to be placed as security.
This implies that the borrower does not give the auto loan company an asset or an item to stand for the loan as security in the event of failure to repay. Unsecured auto loans are preferred by those persons with stable and sufficient income because they are payable within relatively short time.
Due to the short period of payback, they attract a comparatively high interest rate. Usually, they are paid within months or a few years mainly less than two years. The decision to acquire unsecured loan is determined by both the individual and the institution.
For instance, a borrower may have sufficient amount of income, but the car loan company decisions not to offer unsecured loan. This is because the institution may have considered other factors such as the economic situations that might affect the borrower’s financial stability for example economic recession.
The car loan company might also take into account the credit worthiness of the customer by establishing the credit score. An auto loan company will grant a loan after ascertaining that the clients’ score is good. Typically, delinquencies are used to determine a personal discipline in handling credits.
Delinquency is the tendency to pay for advances or loan payment late after the stated date of remittance. Although there are many factors that may lead to this behavior, it is usually considered a personal financial mismanagement. On the other hand, if the score is bad, the financial company may not offer the unsecured loan.
A good credit score is characterized by ability to pay advances in time, increased personal bank savings, payment of important bills such as rent in time as well as sufficient personal income. Consequently, the individual may decide which car loan to apply. Depending on one’s financial resources, the borrower can opt for the unsecured auto loans because they can repay without stress.
In case the personal budget is manageable and a large amount is left as disposable income, the client can decide to have unsecured auto loan. In addition, if the income is stable and sufficient but there is a need to borrow soon, the clients may choose to obtain unsecured loan so that they can clear the repayment in advance to be able to apply for the other loan.
Indulging in multiple borrowing may hamper the ability of the client to repay comfortably. Also if the client has enough income, an unsecured loan can be applied. Furthermore, where the client feels that, the security placed as collateral may be confiscated, one may decide to have the unsecured loan.
It should be noted that although the secured auto loans attract a lower rate of interest, the period of payment is long and the total payable amount is usually high. This total payable amount entails the principal amount plus the interest chargeable sum. Therefore, even though the unsecured loans have higher interest rates, the total payable loan amount is less that the secured loans.
In essence, unsecured loans are less expensive than secured loans but more cumbersome to pay. In a nutshell, the advances paid per month for the unsecured auto loans are quite high and many clients do not afford to pay hence opt for the secured auto loans.
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