Unsecured Car Loans With Bad Credit

Something not commonly thought about is that unsecured car loans are, in fact, secured car loans after all.

Secured loans are loans that have some sort of collateral offered to secure the loan. Home loans and auto loans are just this type of loan. The security is the home or the auto that is being financed by the lender. If the borrower defaults on the loan, then the lender takes steps to cover their losses by either foreclosing on the home or by repossessing the car.

In many cases, even though a home goes into foreclosure or a car is repossessed, the loan is not discharged and the borrower is still considered obligated to pay the debt even though they are no longer in possession of the asset. Even if the lender is able to sell the home or car to another buyer, the borrower is still obligated to pay any fees or expenses incurred in the sale and may also be liable to pay the difference between the new sale amount and the owed balance on the loan. In fact, in the case of home foreclosure or repossession, any sale of the asset is often reported to the Internal Revenue Service as a gain or profit, since in essence the borrower gained a profit from the sale of the asset - even though they did not initiate or sign off on the sale.

Many people believe that they have bad credit and are surprised when they discover the credit requirements for most private party auto loans. These are loans that are provided by lenders outside of the dealership finance company. In many cases, auto dealerships will only provide loans to "qualified" buyers - meaning people with credit scores higher than 700 or 720. However, many private lenders only require credit scores of 620 or higher. In fact, the average credit score in the United States is exactly that number - 620. As a result, many people are happily surprised when they apply for a car loan with their local bank or credit union and find they are easily able to qualify for the purchase of a new or used car. However, it should also be noted that private party loans are usually only available for car purchases of $30,000 or less, which eliminates most luxury car purchases.

Most private party loans are extremely receptive to individuals who have had credit problems in the past, although if there is a bankruptcy, it must have occurred at least two years in the past and the applicant must usually have demonstrated good credit history for the most recent two year period. Also, most lenders require that a copy of the bankruptcy discharge papers be submitted with the application. Also, lenders for these types of loans usually require proof of income, employment and residency before loan approval.

Finding an unsecured car loan is actually not a difficult process if you have had credit problems in the past. A car loan is actually a secured loan because the car is the collateral for the loan. The easiest loan to obtain for individuals with a difficult credit history is a private party auto loan, which is available from almost any bank or credit union.