Things to consider when searching for secured and unsecured car loans in Toronto
Collateral is offered in exchange for the loan in a secured loan. The collateral in many cases, is the actual item the loan is being taken out on. For example, the home itself is the collateral for a home loan. If the borrower defaults on payments and fails to meet the agreed terms of the loan, then there is a foreclosure and the lender then takes possession of the home. This same concept rings true in many cases for auto loans as well. Where the collateral for the loan is the vehicle the loan is taken out on. The vehicle will be repossessed by the lender if the borrower fails to make the agreed payments on time.
On the contrary, Unsecured loans are given without any collateral offered. Credit cards, student loans and personal loans are all examples of unsecured loans. If payments aren’t met, and the borrower fails the terms of the loan. Then the lender can do very little other than attempt to collect what’s outstanding through a collection agency, or to sue the balance owed to them by the borrower.
THE SECURED LOAN PROCESS
There are instances where the lender of an auto loan will ask for a security other than the vehicle itself. This case often happens if the borrower has particularly bad credit, no credit or can only prove a very low income.
If collateral is asked for by the lender as security, then the borrower is responsible to offer their land, home, boat or any other form of property to be held against the loan. This process is taken in the form of a lien, which is a legal document. Once the terms of a loan are completed, the lender will then release the lien against the property.
If for whatever reason the terms of the loan agreement aren’t met by the borrower, and they fail to make payments, then the lender will have legal authority to exercise the lien and take possession of the property.
SECURED LOAN REQUIREMENTS IN TORONTO ON
In the case a lender required collateral, the property offered without a question has to be owned by the borrower. However, the car itself, in many cases is the collateral.
- Income. Every automobile loan there is proof of income required. This can be in proven in the form of copies of your federal tax returns, bank statements that show regular activity in the form of deposits from other sources of incomes, or pay check stubs from you pay periods in the last X amount of months/years.
- Employment. A steady source of income is also a requirement. Employment is how most people prove this. Generally, most lenders opt for applicants to provide at least 12 months of steady employment. However, people with other sources of income (inheritance, spousal support etc) or self employed individuals, as long as a predictable and steady source of income is demonstrated, then most lenders will work with you.
- Residency. Steady residency and proof of dwelling for at least 12 months, is what many lenders in many cases require for a borrower to demonstrate. However, if you have just moved into a new home, then you should be able to demonstrate that you’ve been living in your prior home the allotted time.
Securing the loan with the vehicle itself as the collateral, is how a secured auto loan usually works. This type of loans requirements are very similar to most other kinds of loans. Borrowers must be able demonstrate employment, residency and steady income.
SECURED CAR LOANS LET YOU PAY SMALLER AMOUNTS OVER A LONG TIME
Banks offer unsecured auto loans, on the assumption that you will meet the agreed payments on time and that the loan will be payed back every month for the term. You will easily qualify for this type of loans if you have a high credit score. However, these loans are generally 48 months the longest and their rates are around %13.
When the car serves as the security in a secured auto loan, the running rates are between 3 and 5 percent and the have a maximum push out of 72 months on average, and sometimes 84 months. So it’s obvious that a secured auto loan is a superior choice for purchasing a car compared to unsecured loan. When interest rates are 13 percent and there’s a 4-year limit on the loan, buying a car with a personal loan will significantly raise the monthly payment than a standard car loan.
SECURED CAR LOAN ADVANTAGES
Secured auto loans are usually the best option for getting the best loan terms and interest rates offered by lenders, for those who own their homes or other larger assets. Liability does present some issues to some when linking their home or asset to a car loan, however the secured auto loan has specific and significant advantages.
- Looser terms. When there is collateral to lean against for the lender, taking out a secured auto loan offers more flexibility in its payment terms. These flexibilities often lead to more savings for the borrower as he or she has more control over the method in which the loan is paid back.
- Lower income requirements. Once again, because of the collateral offers a security blanket to the lender, they are more lenient about income levels and borrower eligibility. Hence why a secured auto loan is great for potential buyers who have freelance income (not steady).
- Tax-deductible income. Even though the income on different kinds of personal loans is tax-deductible according to the CRA, if a borrower opts to use a home for a secured auto loan, the interest can be tax-deductible. A home equity line of credit or loan, is a type of loan where the interest on payments can be deducted by the borrower from their income taxes. However, research should be done as to wether these apply to standard deductions that filers usually take.
- Less hassle. When the primary asset that is tied to the loan isn’t the car, such as is in a secured auto loan. The lender is less likely to issue a repossession.
As long as a default is avoided on a secured auto loan, this type of auto loan will always equate to more money in the borrowers pocket at the end of the term. This is why that when times are skittish, and credit is hard to get, borrowers opt for secured loans for purchases of necessity of big ticket items.
RESEARCHING SECURED CAR LOANS
Being aware of the pros and the cons before committing to a loan, is something that researching the topic would help you in. Car title loans, are auto loans that have more favourable options and loan terms, but come with a higher risk factor. Research the loan you’ve been offered before you decide on a secured car loan. Here are a few steps.
- Check for penalties. Your new car may be repossessed if you fail to make payments, this is what a secured car loan means. Make sure to look through your specific loan terms and see how many payments you would have to miss, as well as what the penalty fees are, be sure to avoid a secured car loan if your finances aren’t up to par. It will cost you money and damage your credit.
- Investigate the benefits. Secured car loans aren’t as risky to the lender, therefore there are benefits that an unsecured loan wouldn’t offer. Be sure to browse your loan offers, look for extended repayments and lower interest rates. Sometimes if you have great credit, you’re offered additional benefits such as zero down payment for the vehicle.
- Compare secured/unsecured loans. If you are eligible for an unsecured loan, you should compare the terms between a secured and an unsecured loan. Unsecured loans are always a better choice for you as they are less risky. Look at these three steps to research secured car loans before buying, and you’ll be more likely to find the best option for you as you’ll be more informed.
SECURE CAR LOANS, HOW TO COMPARE THEM
You may have been approved for multiple secured car loans after you’ve applied, and you may be wondering how to compare them so that you can figure out which loan terms make the most sense for you. Depending on the lender who’s offering the loan, the details of a secured car loan can cary drastically. Here are a few steps that will help you figure out and make comparisons when you have various options.
- Compare rates. The interest rate on the loan, is the most obvious thing to compare between the different loans. The lower the rate, the loess money it will cost you in interest. It’s always a good i sea to calculate the dollar amount it will cost you over the term by converting the interest percentage into dollars. You can do this very easily using an online calculator.
- Penalty comparison. Knowing what conditions will lead to your car being repossessed is very important with a secured car loan. Conditions vary from lender to lender, some are more strict than others. Also be sure to know in detail the penalties and extra fees that may potentially end up costing you lots of money.
- Compare benefits. Due to the lower risk for lenders a secured car loan offers, there may be benefits offered, that normally you wouldn’t get with an unsecured loan. Check for incentives such as extended repayment periods offered by some lenders. There may also be zero down payment benefits as well, so it’s a good idea to look into the specific terms.
- Check what kind of interest rates are offered. You can come to the best choice for your specific situation by comparing the interest rates and the benefits of each car loan that’s been offered to you.
CAR LOANS USING HOME EQUITY
Home-equity line of credit, is a very popular for of secured car loan. It may be popular due to the multiple benefits to this kind of loan: flexible payment terms, and there is room for negotiating interest rates as there is an asset to back up the deal. This also mean that if there is a nonpayment situation, the asset is vulnerable, at the same time looser payment terms are given to someone who need money for anything: renovations, buying a car etc.
Watch out for excessive fees when negotiating a home-equity line of credit, as some lenders often try to add extra charges, but the lender is already getting paid through the terms of interest. Make sure to look through the fine print as well to have all your payment terms within your budget.
GETTING A SECURED CAR LOAN WITH BAD CREDIT
Secured car loans are normally handed out to those with superior credit, however most people don’t have fantastic credit. Do not fret , there are always ways to get anything you want. Keeping a good credit history when you’re young is a good idea, as it may put a damper on your spending situation in the later years. Staying on top of credit card payments and student loans is your best option. It’s a good idea to not use credit cards at all when you’re young, for small purchases anyways. To get a loan with poor credit you’ll need:
- References. Having a person speak positively about you is always good. A good reference can often make the difference in securing a poor credit car loan. A reference is often a friend, past employer, or anyone who has known you for a long time and can vouch for your character and reliability. It will go a long way for those that have no credit or bad credit to have someone speak well about your character.
- Your home. For those that own their home, it is a great resource when trying to get an auto loan. Quite simply, you put your home up as collateral, however the penalties involved if break the payment agreement are tremendous. The lender can take your home. It is risky, however if you already own a home then you’re probably a calculated individual, and you’ll know if you can meet the terms in the agreement.
- A valuable vehicle. In most cases, an already owned vehicle can be used to get a secured car loan. It is often an easier risk to take than putting up a home.
- Your work. Having employment is grounds to get you an unsecured car loan. You can use your wages as collateral if you are employed. This scenario is a good solution for people who own nothing of value and would like a secured car loan.
- Other valuable possessions. You may have other items throughout your home that may be valuable and can be used as collateral , if you have bad credit. Jewelry, silverware, paintings and boats can all be used to negotiate a loan.
SECURED CAR LOANS: DISADVANTAGES
Homeowners are quite often intrigued with a secured car loan as a means of financing a new or used car. There are specific benefits that a secured car loan offers, but there are some disadvantages as well. These are some of the disadvantages to a secured car loan.
- Your home is on the line. A secured car loan mandates that a home or other valuable property be used as collateral to get approved or to secure a lower interest rate for persons with poor credit. Many people dislike the idea of tying in their home to a car loan, particularly in an unstable economic period where a job security isn’t particularly high.
- Inflation can occur with long term loans. A secured car loan can also be stretched over a long duration. A loan period can span several years,
- Extra charges can be detrimental. Lenders can seem to be stingy with a borrower in certain types of secured car loans. The notion of a secures auto loan is the there are lower risks for a lender, which should equate to less income from the loan. To further capitalize, lenders will fluff up their deal by adding extra charges; opening charges, closing charges etc. Therefore it’s important for the borrower to remain firm on the loan terms, otherwise the extras can end up leaving the borrower in a bad situation.
- These liabilities often make potential borrowers reconsider taking out a secured car loan, however a in most cases, a secured loan is often a great way to get a low interest way of financing a vehicle. Ultimately, buyers should always calculate for a monthly payment they can afford, and make their payments reliably. A secured loan is often an easier loan agreement that offers great interest rates by using a home as a collateral.