Secured Car Loans
A secured car loan is similar to a secured personal loan; the lender has an item of security, which they can repossess in the event that you are unable to repay the loan. In the case of secured car loans, this item is usually the car itself. Some lenders require that this item (sometimes referred to as 'collateral') is your house instead. In this case, you must ensure that you repay your debt as specified in the loan contract, otherwise you could lose your home (see Missing Payments).
Secured car loans usually have lower interest rates than unsecured loans. It is also easier to obtain a secured car loan than an unsecured loan and therefore this may be the best option if you have a poor credit rating or have had difficulty applying for loans in the past.
Usually, a secured car loan will allow you to borrow more than an unsecured loan, as the lender has a guarantee that the debt will be repaid: this guarantee is the item of security. Typically, you may borrow up to £25,000 with a secured car loan, depending on your financial situation and the lender you choose. Since the loaned amount is larger, a secured loan can enable you to buy the car that exactly meets your needs and wants.
Most lenders will let you to choose the length of time within which you wish to repay the loan; this period is known as the loan 'term'. There is usually a maximum loan term, but this could be as long as fifteen years. You should remember that the longer you take to repay the debt, the more the loan will cost you, as interest is charged each year. For more information on how interest affects the cost of a car loan see Interest Rates.
If you miss repayments on a secured car loan, you are putting the car (or other secured asset) at risk of repossession. Your lender can recover debt by repossessing your asset and selling it. Repossession will not occur as soon as you miss one repayment, but if you feel you may fall behind with repayments, you should inform your lender as soon as possible. Lenders would prefer that you pay your loan repayments, rather than lose your car: they have to pay to repossess your vehicle and so this is usually a last resort for them. If you need financial advice regarding your car loan repayments, you may wish to speak to your local Citizens Advice Bureau. For more information see articles Missing Payments and Debt Management.
