Car Loans 101

There are two types of car loans :

• Secured Car Loans - A secured car loan means that you have put something up as collateral against the money that you are borrowing. For instance, you are putting up your house, or something of high value. These loans usually yield a lower interest rate, due to the fact that you have anted up to the lender.
• Unsecured Car Loans - An unsecured loan is given out by the lender at a slightly higher interest rate. You have not risked any of your assets, and are credit worthy in the eye’s of the lender.

What determines approval or rejection?

When you get a car loan, you have to prove that you are capable of paying the loan back, as well as accumulated interest. The lender will look at both your level of income as well as your credit rating. These two factors will determine if you are approved for the loan, as well as the annual percentage rate. Obviously if you do not have substantial income to pay back the loan, you will be rejected by the lending institution. However, credit rating adversely affects the annual percentage rate. Even if you have a lousy credit rating, you can still get approved for a car loan, but you are going to pay a much higher annual percentage rate, because you are viewed as a high risk.

Is it better to get pre-approved or to get approved by the dealer?

It is always better to get pre-approved before you go to the dealer. This will ensure that you get the best deal possible, because you have the cash in hand. Having the cash with you is a major bargaining chip and will ensure that you get the best deal possible at the dealership. Who in their right mind would let you walk away when you are ready to buy the car?