Car Loans or Personal Loans?
The FIRST decision that you, your Car Loan Broker, Personal Loan Broker, or a Financier will make is whether the loan will be secured or unsecured, and if a "Good" is involved, like a car, boat, motorbike etc.
In other words; Is the loan a car loan, or is it a personal loan?
If the loan is going to be a personal loan, will the loan be a secured personal loan or an unsecured personal loan?
Secured Loans - Car Loans
A secured personal loan is where the financier or personal loan lender agrees to advance the money to the customer for the purchase but takes a "goods mortgage"; that is to say a "Bill of Sale" or "security" over the item; namely the car.
Vehicles are the most common item that is "secured against"; next to a house and are often referred to as car loans.
As the vehicle in this case is going to be "used" as security, there needs to be a way of ascertaining its value.
A dealer for example will have a price on the car, it will be advertised for a different price, and after negotiation with the customer, a third price will generally be agreed upon. This final agreed price; is also called, its "TRUE MARKET VALUE".
However there is a standard that is adopted by financiers; and in typical tradition, there is more than one standard; but mostly the value that a financier will put on a vehicle ( used ) is found in a book called "GLASSES GUIDE", and is also available on-line by subscription.
The other main guide is the "RED BOOK".
The term used is "booking the car".
Your broker will be able to "book" the car for you, letting you know if you are getting a good deal; or not.
Both these guides represent a nation wide average of sales on different vehicles, gained from gathered data, from government motor vehicle agencies, auction houses, etc.
It represents a national guide as to what the vehicles are being bought for, traded in for, and sold for in retail, trade and wholesale situations.
Financiers generally take the "middle of the road value"; or trade value, as the value they will lend against, however this is a guide only, as the overall profile of the customer is considered, and forms part of Nigel Brookson's 6 'C' of Credit Assessment.
The sole purpose of the loan is the motor vehicle that is being purchased, and there can not be any 'extra money on top' for anything else.
Unsecured Lending
Unsecured lending is the financier agreeing to advance the money to a customer for the purchase but takes no security over the item.
An unsecured personal loan is where the Financier will lend money for any "worthwhile personal purpose", but take no security.
Examples are stereo equipment, holidays, and debt consolidation (i.e. non tangible items).
Cars can be funded secured or unsecured, depending on the profile of the customer, and the money can be used to make several purchases, or for several reasons. An example could be consolidating 2 credit cards; which total $10,000, a car for $20,000 and a holiday for $5,000. The total loan amount would in this example be $35,000, and no security would be taken if the loan was approved unsecured.
Because of the greater risk, unsecured financiers do not like adverse credit, however paid small telecommunication type defaults are generally excused.
In situations of customers wanting to consolidate debt, like combining personal loans and credit cards, the payment history on them must be good for the last 3 months for the cards, and 6 months for the loans.
That is to say, the statements show no late or overdue payments, and the credit card has not gone over the limit.
Banks seldom take on another banks bad debt.
If You have had:
- Banks decline an application for a personal loan or a car loan
- Default letters on a personal loan, a car loan, or a credit card
- Late payment letters on a personal loan, car loan, credit cards
- Or if you are unsure of what is on your credit file report
You can get a copy of your credit file, your credit score, and a report letting you know how best to approach your next personal loan or car loan application, by going to My Credit File Report.
It may be possible however to get an amount of money to pay off these debts as long as there is some 'good credit' that is being consolidated, and this is a debt consolidation loan.
Your car loan broker, or personal loan broker, can guide you to what is, and what is not going to be possible, taking your personal details in to account.
If you are aware of what is on your credit file, you are ready to apply for a personal loan, or apply for a car loan.