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What type of loan is a car loan?
There’s a lot of terminology with car loans I don’t understand. I'm planning to finance my first car and would like more information. Could you explain what kind of loan a car loan is?
Lauren Smith · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“Loans can be very confusing, so don’t worry, you’re not alone!
- Secured
- Unsecured
A secured car loan means
there is a lien on your car
. A lender still owns the vehicle. Essentially the lien means that if you don’t pay your loan, the lender can take the asset from you through repossession. A home mortgage is also an example of a secured loan.An unsecured loan means the lender can’t repossess your car. When you have an unsecured car loan, the lender might raise the cost and interest rate since they can’t take your car if you miss payments.
Generally, this means a lender will require your car loan to be a secured loan as it is a huge risk to loan money without collateral.
Since you’re planning on financing your car, be sure you have the proper
car insurance
as well. Most lenders require full coverage on a financed vehicle, so be sure to shop around before purchasing your car. You can save yourself some time and energy by doing this via the
Jerry
app. Jerry gathers quotes from top insurance providers in seconds!” View full answer
- Gregory R.
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