An Easy Explanation of Unsecured Car Loans

Unsecured car loans do not require any security or collateral. These loans are usually issued based on your financial standing, your credit history and your current employment and income statements, which determine your potential to repay the loans. Since no form of collateral is being provided, these loans are a little difficult to get approved. Unsecured car loans are considered riskier by the lender as they don't have anything to sell if they need to recover their loan amount in case of default. To compensate for this added risk, lenders issue unsecured loans at a higher rate of interest.

Unsecured car loans do have some benefits, especially if you do not own your own home. People who are renters can finance their car using an unsecured car loan, as long as their credit score is high enough. Also, if you are a home owner like myself who is not comfortable pledging my house for a car loan, you can use an unsecured car loan. The processing for these loan applications is faster as there is no need for appraisal of the property being pledged.

The interest rate and the term of unsecured car loans are fixed. So you get to plan out the monthly installments and make necessary preparations. Unsecured loans are also provided to people on a pension or people on some type of income support. But there are certain criteria which the borrower needs to fulfill to be eligible for an unsecured car loan. The borrower must be over 18 years of age and should have full-time employment. Normally, there are also minimum criteria for monthly income. In case you are trying to purchae a used automobile, unsecured loans are normally not given for cars which are over five years of age.

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