Getting Low Rate Unsecured Car Loans

Are you looking for financing in the form of "unsecured car loans" on a new or used car or truck? If you do not have significant assets, you'll be taking out what's called an “unsecured car loan.” Knowing about how lenders figure out rates for these loans will help you get the best deals available.

What Is an Unsecured Loan?

An unsecured loan is a loan that is not backed up by any collateral. The lender uses the borrower’s credit history to analyze their relative credit risk, and the interest rates for the loan are based on these figures, which lenders believe indicate how likely a customer is to pay off the loan on a vehicle.

Know Your Credit Score

Since your credit score is the main determination for an unsecured loan, it's best for car shoppers to know up front what their score is. A score below 650 will lead to a harder time getting competitive financing rates. Scores above 720 are more desirable for lenders, and can get you lower interest rates.

Fix a “No Credit” Situation

Some first-time car buyers don't have any credit history. They've never gone into debt, or borrowed significant sums of money to finance their lifestyles. That's a good thing, but too many lenders don't acknowledge it. Today's financial system seems to reward debt. Someone who is without a credit history can get one eye opening up a line of credit (such as a credit card), using it responsibly to pay off purchases promptly, and thus, show lenders and credit agencies that they are not a credit risk.

Use a Cosigner

Another thing someone can do to get low interest rates on an unsecured loan is to use a co-signer, someone with good credit and stellar work history, to secure lower interest rates. However, the co-signer and the buyer have to be careful they are not tricked into a situation where the co-signer is the primary party for a financing deal. Read paperwork carefully and agree on payment responsibilities if you factor a co-signer into the equation.

Put Down a Large Down Payment

When you supply a large down payment, it naturally lowers the amount of interest you'll be paying over the term of the entire loan. But for many lenders, a large down payment is also a significant marker of customer responsibility. The reasoning is that those who put down large down payment are much less likely to “walk away” from a debt then those who are frivolously signing onto low monthly payments. Acquiring a larger down payment will help both the borrower and the lender, and lead to lower interest rates for those unsecured loans, where credit risk is always the main factor.

Taking advantage of one or more of these options will help those without homes or properties to get decent interest rates on a car loan and help provide more credit history for future purchases, or it will become easier to get the interest rates they are due, as a person builds their credit history over their lifetime.