Car loans are a tricky and sometimes confusing topic, especially because many borrowers don’t know if their credit score will affect their rate. There are two types of car loans: secured or unsecured. An unsecured loan is typically an extension of financing with a dealer that takes the place of your trade-in or private party sale. Secured loans typically require collateral in order to secure the loan and this is usually taken from the purchase of a vehicle.
Car Loan Basics
Car loans can be a challenging process, even more so when you have a bad credit score. However, there are two different types of loan options that may be able to help you out. A loan from a credit union will cost less and may offer better rates than those offered by banks.
Generally, a credit union will be able to lend you a car loan with an interest rate lower than that of the bank. Credit unions are also generally more flexible in terms of the types of loans they offer.
How does a car loan affect your credit score?
When you take out a car loan, your credit rating will be affected by the amount of debt you have due to interest payments. If your credit score is already low, it will fall further when you apply for a car loan.
A car loan is a big purchase. Most lenders are willing to give you a higher interest rate on your car loan if you have a lower credit score, but this doesn’t always mean that it’s bad for your credit score. Check out these tips from the BBB to learn what kind of effect your credit score has on your car loan rates.
Secured vs Unsecured Loans
Secured loans are loans that are backed by something of value. Unsecured loans are loans that don’t necessarily need to be repaid with money. For example, a secured loan might be a home or car loan, while an unsecured loan could be for personal financing like for a credit card or student loan. As such, secured loans tend to have higher interest rates depending on your credit score and risk factors whereas unsecured loans usually have lower interest rates compared to secured loans.
Secured loans are a popular option for those who might be struggling to qualify for an unsecured loan, but want some protection in case the borrower defaults.
What about my trade-in value?
If you have a car that you are not currently using, but is still in good condition, we can negotiate the best price for your car. We have access to multiple lenders to provide our customers with low-to-no interest auto loans. This means you will get the most for your trade-in and own a brand new car sooner!
Some credit unions may offer a trade-in value that is greater than the value of your car. Whether you get more money in hand or your trade-in value, it’s always worth it to contact a credit union for a car loan rate that beats banks.
Car Loans at Credit Unions
Many credit unions offer car loans that are competitive with banks. Loan rates from credit unions can be as low as 2.59% and up to 3.79%. Credit unions also offer loan guarantees of up to $500,000.
Credit unions offer car loans that have rates and pricing that most banks can’t match. These rates are available at the credit union, but in many cases they are often lower than if you were to purchase the same loan through a bank.
The result of our analysis was that credit unions had loan rates that beat banks by up to 3%.
Credit Unions have higher loan rates on car loans and can get you approved in less than 1 day.