When you are planning on buying a car, you will usually need a very large amount of money, and not many people can afford to raise or get hold of such a huge amount all at once. This is where a loan can come in handy; it facilitates the purchase of the car. There are, however, many variations of car loans, and just distinguishing between one and another is a daunting task. So although before you exam each and every one of these variations, let us first ground you on some principles:
Secured VS Unsecured Loans, what you need to know.
In Banking & Finance, we are taught that when a huge amount of money is involved, obtaining a loan from the lending institution – such as a bank – would involve the submission or offering of a quoted possession (such as a piece of very expensive jewelry or a land title for a very large tract of land which you happen to own) to serve as 'collateral' or sort of a 'security' pledged for the repayment of the loan. In car loan lingo, a loan obtained in this way is called a 'secured' car loan, and this type of loan brings with it many advantages, as well as being easily available, mostly from banks. Some of these advantages are relatively low interest rates, the ability to borrow a large amount, and the negotiability and / or flexibility to pay in small monthly installments and / or longer repayment periods, so you can easily manage the repayment of your car loan. The main disadvantage of this type of car loan, however, is that you run the risk of losing your collateral if you do not repay the loan in the agreed-upon period of time, even if it is usually very generous and also usually comes with an 'extended' time frame called a 'grace period'.
You can avoid this very real risk of losing your collateral, on the other hand, by instead taking what is called an 'unsecured' car loan, which will not require you to offer or submit a collateral. But because the lender does not have any security at all of recovering his money in case of failure to pay on your part, customers are sort of 'penalized' by the huge interest rates that they are forced to pay by securing this type of car loan . Most car 'financing' schemes as well as car dealership loans employ this kind of loan, and most customers choose this simply because they have no collateral to offer or do not want to offer / submit one.
Thus, there are essentially two main types of loans, 'Secured' and 'unsecured'. All the different variations of car loans or car loan 'schemes' as they call them, are basically just subtypes of these two. There are other factors that come into play, such as the participation of sort of a 'sponsoring' bank with which you have a credit record or one which can obtain your credit records. Such banks, for instance, would offer to your interest payments, thereby allowing you to enjoy those so-called 'zero-interest' payment schemes, provided you have a good credit history or a high credit rating / standing, another major factor which also comes into play.
These are just some of the numerous things you have to consider when seeking or choosing a car loan, especially if you are a first-time buyer. Educate yourself on the ramifications and these various sundries about car loans before finally deciding to choose one, and good luck in your quest for the car loan best suited for you!