An unsecured car loan allows you to finance the purchase of a car without needing to put forward any collateral or down payment. You should know the important facts about unsecured car loans before you sign the financing agreement for your next car purchase.
Interest Rates
The interest rates on an unsecured car loan are fixed. Fixed interest rates allow you to do extremely accurate budget planning before signing the financing agreement. When you know exactly what the interest rate on your loan is going to be for the entire term, you can calculate what the monthly payments will be until the loan is repaid. Use this information to ensure the monthly payments will easily fit into your expected monthly budget.
Repossession
Due to the lack of collateral put against the loan, there is a higher likelihood of your car being repossessed after missing a minimal amount of payments if you use an unsecured loan. Without collateral, the only asset the lender can leverage to ensure payment is the car involved in the loan. You should be prepared to make every payment for your unsecured car loan on time and in full if you want to avoid the vehicle being repossessed.
Proof of Income
The lender considering your application for an unsecured car loan will, most likely, require proof of income sufficient to keep up with monthly payments. Most lenders recommend you agree to pay no more than thirty percent of your monthly income toward your car loan. Prepare documentation such as check stubs and income tax returns to show to a lender as proof of income before you apply for an unsecured car loan.
Check Your Credit
Know your up to date credit report before you apply for an unsecured car loan. A strong credit history will allow you to gain approval on better terms for your unsecured loan, most importantly a lower interest rate. The average interest rate those with low credit ratings qualify for are much higher than the interest rates available to applicants with good and excellent credit ratings. Look at your three credit reports and determine what you can do to improve the score before applying for the unsecured car loan.
An unsecured car loan can be the best choice for your next vehicle purchase depending on your financial situation. Before you apply for an unsecured car loan, know how much you can afford to pay each month and be prepared with knowledge of your current credit rating.
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