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Secured Versus Unsecured Bad Credit Auto Loans

The availing of bad credit auto loans is a great relief to those with not so good credit histories. All types of loans have terms and conditions attached to them.  The catch about auto loans is that you will be required to pay back the principal amount with additional interest.  When applying for a bad credit auto loan, the auto lender will give you an option of choosing a secured or unsecured bad credit auto loan.  The meaning and difference between these two are:

Secured bad credit auto loan: For this loan, the borrower is required to provide collateral for their loan application.  This collateral acts as security to the lender just in case the borrower fails to pay back the auto loan. The lender will then have an option of selling the collateral to retrieve his money.

Collateral can be the car you will buy, or any other property that the borrower owns that has the same value as the car loan.  Bad credit car loans come with very high interest rates due to the risk the auto loan carries.  By applying for a secured bad credit auto loan, you will be eligible to lower interest rates.  The borrower has to pay the monthly installments in time to avoid losing the collateral.

Unsecured bad credit auto loans: For this type, no collateral is provided for the auto loan.  The auto lender therefore has nothing to claim if the borrower fails to repay the loan.  This risk factor causes the auto lender to charge very high interest rates.

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