What is the real difference in cost and conditions between car loans that are secured or a unsecured personal loan and how that difference affects your finance and their repayments. The difference can vary depending on the bank or finance company, but is bigger when the true cost of each is taken into account.

Understanding secured and unsecured car loans in detail can be useful in saving money but, let’s first have a look at the various apparatus that determine the cost of your loan and of your monthly repayments. The coat of the finance is the total you repay less the sum borrowed. Hence, let’s say you are repaying $20,000 at 12% interest rate over 36 months; you will pay back at the rate of $664.29 per month. That would total a repayment of $23,914.44, and the cost of the loan would be $3,914.44 plus any set-up or administration fees. A loan calculator will helps you calculate car finance online.

An substitute to a car finance would be car hire purchase (HP), where you hire the car over the repayment period and be given the owership papers to the vehicle with your final payment. Until then the car belongs to the HP company.

However, most finances are either secured or unsecured, and not all financiers offer car loans that are unsecured so let’s look at car loans that are secured first. A secured car loan is one whereby the lender offers the loan with the car as security. If you fail to make payments, the lender can sell the car to recoup their money. It is possible to get a secured car loan on old cars, often 7 years, but the finance term could be shorter than 5 yearsor not at all by using your home or some other form of security. These however are not strictly classed as car lending. It is generally the car that is the security.

Secured car loans can include on-road expenses such as the registration, loan protection insurance for disability,death or unemploymentand comprehensive auto insurance as part of the financing deal. Loan insurance makes sure that the loan is paid off in the event of your death during the loan period, and comprehensive car insurance is needed to make sure that the car is in good condition should it be needed to repay the finance in the event of you having your car repossessed.

This might look hard , but these are conditions you see with most secured car loans, not only car loans. Secured car loans terms are from 1-7years, and the interest rate will be lower than that for an unsecured car finance where the lender charges extra to compensate for their added risk. If you put deposit or trade amount off the finance this will lower the repayments, or a shorter term, whichever you prefer.

Balloon payments could be an option on your finance package, which is like a deposit in reverse, payable at the end of the period. This is popular by those whose income will increase over the period, and they will be in a better financial position to pay a lump sum in 3 - 5 years time. This too results in either a lower monthly repayment or a shorter repayment term.

If you are on the lookout for a used car, your loan will be priced differently according to the finance company and the age of your car. Many will charge higher car loan interest rates, and the current credit crisis has changed the outlook of many lenders to unsecured car finance in particular. Many no longer offer unsecured finance due to the increased risk in the current economic climate.

However, they are still available, and some finance brokers can ensure you get the best unsecured car loan available. In addition to the car loan rates, you should also compare the fees charged, since they can involve a considerable outlay for you before you get the loan.

The key differences between secured and unsecured car finance, therefore, can be summed up as:

Secured loans are more affordable to repay, with generally lower rates.

Car loans that are secured must have full comprehensive car insurnance, while unsecured financing will not.

Both finance packages could require life insurance cover for the finance, but secured car finance packages are more likely to.

You can sometimes include comprehensive insurance, registration and other expenses in the secured loan, but with an unsecured car financing you must include the the expenses on top of the amount borrowed.

Fees for unsecured loan package can be greatly higher than for secured car loans.

Not all car finance lenders will offer unsecured auto loans.

There few doubts that if your car is young enough to be given a loan with the car as security, then that should be your option. You might be able to arrange a secured loan for an older automobile with your house as security, but you will have to make sure to maintain the payments since lenders are becoming unsympathetic in the current economic down turn.