The Different Types of Auto Loans

Cars have become a necessity as much as a luxury, and while you might want to show around your newest automobile, you also need it for your daily commute. However, cars are expensive due to the soaring car prices. In this state of the economy, you will be excused if you choose to buy your car on loan. Auto loans are offered in nearly every place in the world. For instance, you can easily get a business auto loan in San Antonio and expand your fleet.

Whether you are a business looking to grow your arsenal of cars or an individual trying to figure out a way to finance a new car, we have got you covered. Keep reading to explore the different types of auto loans and which one you should get. 

Secured vs. Unsecured Auto Loans

The most critical categorization of auto loans is whether they are secured or unsecured. A secured loan involves your lender putting a lien on your vehicle, whereas an unsecured auto loan does not. A lien makes your car collateral if you cannot repay the lender. In such a case, the lender will repossess and sell your car to pay for the monetary loss. 

On the other hand, if you fail to pay an unsecured loan, the lender cannot repossess your vehicle. Instead, they pursue other legal means to get the money back. As unsecured loans have the lender taking a higher risk, they are offered at a higher interest rate than secured loans. 

You might be wary of taking a secured loan as it can risk your car being repossessed, but a low-interest auto loan is a better option than other means of getting a vehicle, such as leasing one. When you finance the car, you own it and can make any modifications you desire. 

Simple vs. Precomputed Interest Auto Loans

Another essential auto loan consideration to make if you wish to pay off your loans early is to choose between a simple or a precomputed interest loan. A simple interest loan allows you to pay off your loans early, whereas a precomputed interest loan does not give you that option. However, you are charged a fixed interest on every payment if you opt for a precomputed interest loan, unlike simple interest loans, where interests take up a significant portion of your early payments.

Direct vs. Indirect Auto Loans

You can get direct and indirect auto loans to finance your new car. In a direct auto loan, you interact directly with the lenders, which may be a bank or a credit union. In an indirect auto loan, you do not deal directly with the lender; instead, a third party, such as a car dealership, arranges a loan for you. 

With indirect loans, you may not be able to see every possible offer, as the dealership will vet several of them. However, the dealer may land you more favorable terms if they have a long history with the lender. 


Car loans are an effective way to finance your new car when you don’t have enough cash in your hand. As long as you have information about auto loans, you can decide what auto loan is the best for your needs. If you have an old car, you can junk it to raise money for your new vehicle and reduce the principal amount you need. This way, you can pay off the loan early.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of


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