Types of Car Loans

Types of Car Loans

With many establishments willing to finance for the car of your dreams, Car Loans have become remarkably popular among all. There are different types of car loans, and an individual needs to know which kind of car loan is suitable for them. 

Types of Car Loans:

There are two types of Car Loans on the basis of Loan type:

Secured Car Loans

In Secured Car Loans, the lending company requires collateral or security to maintain the car loan. This guarantee can both be the car you are buying or any other asset of the person that they wish to put forth as collateral. The rate of interest in these kinds of car loans is essentially reasonable.

Unsecured Car Loans

Banks do not require any asset as a collateral or security deposit when an individual applies for an unsecured car loan. As there is no guarantee involved from the borrower side, naturally, the interest rate is higher in this type of loan and varies from bank to bank. All central banks and NBFCs provide car loans allowing them to buy the car of their dreams.

It is essential for an individual to get involved before choosing the right loan agreement, along with the relevant lending institution. Thus, it is essential to carry out detailed market research for the best deals and suitable lenders. There should be full transparency between the lender and the borrower. No hidden assessments air terms and conditions should be started and must be clarified before the arrangement itself.

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Car Loan Options

There are three types of Car Loans Options on the basis of car type as mentioned below:

New Car Loan: 

If you are preparing to purchase a brand new car from a showroom, you are qualified for a New Car Loan from a bank or lender.

Used Car Loan:

If you have fixed your eye on a preowned car and want to buy it, banks and financial organizations will help you make the purchase. With Used Car Loan, you may receive up to 90 percent of the car’s valuation as a loan. Funding is open for the sale of vehicles that are not older than five years.

Loan against Car:

You can avail immediate funds at a time of need using a loan against your car. If you are qualified for such a loan, the loan amount is transferred to your account almost immediately. You are changing your existing car collateral to gather funds to buy a new car or for an urgency.

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Methods to Calculate Interest Rates

You can determine interest rates in two different ways, particularly:

  • Flat Rate Interest

In this process, the principal sum on which the interest calculations are made live simial during the whole tenure of the car loan. Then the overall interest is distributed over the number of installments to get to EMI.

  • Reducing Balance

Also known as the declining balance method, this method deducts the paid-up principal amount from the astonishing car loan amount. Depreciation value is charged in the starting, which gradually decreases with time and is lower towards the tenure. The interest rate you give is on the repeated principal balance.

Along with loans for a new car, the market also offers loans for used vehicles. These various types of car loans signify the competition and the demand for car loans in the present scenario. It is pretty easy to avail a car loan if you fulfill the eligibility criteria and do not have a bad credit history.

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