Buying a car is not a small decision, especially if you want to finance it. Despite the fact that they are short-term loans, you will be tied to payments for up to two to three years, depending on the loan size.
When it is related to borrow funds, you have the option of using secured and unsecured loans. Secured loans are large loans repaid over a period of at least five years, while unsecured loans are small loans customarily paid back within less than five years.
If you are to pay ineptest on top of the borrowing amount, you would certainly want to save money. It is a nice idea to explore all available options for you and then decide which one is the most inexpensive. In order to save money on interest, the first thing you need to do is to have a good credit rating. A poor credit report will remove all your chances of being eligible for lower interest rates.
But if your credit score is not stellar, you might want to apply for a secured auto loan. Because they are subject to collateral, you will likely offset the risk of the lender and, as a result, will get lower interest rates.
However, the fact is that Car loans in Ireland are secured loans. The car you buy automatically serves the purpose of collateral, giving the right to your lender to take it back when you refuse to repay the debt.
No lender can offer you unsecured auto loans
Although many lenders advertise car purchases as one of the reasons for taking out a personal loan, the fact is that they are secured auto loans. When you formally submit the application, you will have to sign an agreement that has a clause that the lender has the upper hand. This means you are absolutely free to use your car the way you want, but you are not the owner of the car, and hence, you are not entitled to sell your car.
Once you settle the whole of the debt, you will get the ownership. Whether you use dealership financing or borrow money from a lender, you will not have the title until you repay the whole debt.
Auto loans are not advertised as secured loans even though they are because you do not have to put down additional collateral. Your car itself serves the purpose of collateral.
Interest rates are usually moderate for secured loans. Still, because a car is a depreciating asset, interest rates cannot be as low as you expect. Make sure your credit report is up to par while using these loans. A bad credit history will not become a reason for turning you down, but it will invite unattractive interest rates.
Fix your credit score first
You would be hard-pressed to qualify for lower interest rates if your credit history is not up to scratch. Take the following steps to keep your credit file in good condition:
- Check your credit report carefully for errors. Any unidentified accounts and defaults can take a toll on your credit rating. Get those errors fixed. As it may take some time, do it a couple of months before applying for a car loan.
- While borrowing money for your car, you must not have any outstanding debt. Make sure you have already settled bad credit loans in Ireland.
- Pay off your credit card balance. Keeping a balance on your card, even though it is less than 30% at the time of borrowing money for your car, can lower your chances of qualifying for lower interest rates.
- Use credit builder loans to improve your credit rating. Remember that no loan can remove previous defaults and inquiries. On-time payments will only show a positive change in your financial behaviour, a paramount factor to calculate your overall credibility.
- There should not be any outstanding accounts of emergency loans. They must be quite old so that does not influence the decision of your lender.
Unsecured auto loans are available when you need to fund a gap
If you are looking to finance your car, you will certainly end up with a secured auto loan. At least 10% of the sticker price of your car will be the down payment and the rest money you will borrow from your lender.
However, some people are well-off, so they do not have to borrow funds while purchasing a car. They set aside funds and manage to stash enough of it to make a purchase. Because savings might fall short of little cash at the time of buying a car, you can fund that gap with unsecured auto loans.
You can borrow the small sum you need to fund the gap in your savings to purchase a car. Since the amount is not large, a lender will not ask you to put down collateral. You will receive money in your bank account, which you will pay off on the due date. Normally, the size of these loans is not more than €1,000. If it is more than that, you may be put on an instalment plan. In spite of that, you will not be asked to secure your loan.
However, bear in mind interest rates will be very high. As you are borrowing a small sum of money, lenders will not bother about your credit history. They will decide whether to give the nod or not based on your income details.
To sum up
It must have been clear to you now that you can apply for unsecured auto loans only when you already have enough savings to buy a car, and you need only a small amount of money to fund the gap. Otherwise, lenders provide secured auto loans. You do not need to put down additional collateral, as your car will serve the purpose of the collateral itself.
