The Different Types of Auto Loans Available

In this article I'll be describing and defining the different types of auto loans which are usually available.

Unsecured Auto Loans vs. Secured Auto Loans

A secured loan is a loan in which you offer collateral against the loan. Meaning if you don't pay off the loan, the lender can take possession of the property you put up as collateral. In most cases the property you put up as collateral is the actual auto you're getting the loan for.

Unsecured loans are those where such collateral arrangements don't exist.  Unsecured loans are the most popular types of auto loans. A secured loan will most likely offer you a lower interest rate compared to an unsecured loan because of the lower risk associated with secured loans.

Installment Auto Loans vs. Revolving Auto Loans

A revolving auto loan is one where you have access to a continuous source of credit, up to a pre-determined credit limit. You can repay all or part of the amount you borrowed at any time within the length of the loan. You pay interest only on the amount you borrow for the time that it's borrowed. You can also re-borrow the amount you have re-paid.

Installment loans, unlike revolving loans, have a fixed re-payment schedule. The full amount of the loan is borrowed at once and the re-payment schedule and amounts are fixed in advance. You also don't have the option to re-borrow the amount that you've re-paid.

Adjustable Rate Auto Loan vs. Fixed Rate Auto Loans

A fixed rate loan is one where the interest rate charged is fixed for the entire duration of the loan. An adjustable rate loan is one where the interest rate fluctuates, usually auto loan companies go by the Prime Rate, which is what the US Treasury charges its' best borrowers.

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