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Basically, when you use a car loan to purchase your vehicle, you let the lender purchase it for you while allowing you to settle the debt over a specific period of time. The car loan provider provides you a service in which you use their money and in return, you pay the lender for its services through its interest.
Once your car loan application is approved and you’ve agreed with the loan agreement, you are giving the lender the right to be the legal owner of your vehicle until you settle the entire debt. As part of this contract, the borrower and the user are held responsible for providing proper car insurance coverage, repairs, and other maintenance.
How Do Car Loans Work?
In simple terms, a car loan is like getting a “rent-to-own” vehicle wherein you pay the bank or your car loan provider on a monthly basis. This includes the principal amount, the interest rate, and the other charges. As soon as you settle the entire loan balance, the legal ownership will be transferred to you.
When getting a car loan, you have two options -- using secured or unsecured loans.
When you purchase the vehicle using a secured loan, you are giving the lender the right to repossess the car in case you fall behind the repayment and defaulted on the loan. This may be risky; however, you have a higher chance to get approved and pay for a lower interest.
However, when you choose the unsecured type, you do not give the lender any right to repossess the car in case you stop repaying the loan. But, instead of pledging your vehicle as collateral, you are agreeing to pay for a higher interest. In addition, you must prove the lender that you have a stable source of income and an excellent credit remark.
How Long Does it Take to Apply for a Car Loan
Getting a personal loan approved can take between a few minutes and a few weeks. It all depends on the type of lenders you will choose to refer to. Online lenders are known for getting loan applications processed fast. Traditional lenders, banks, and credit unions, however, may take a bit longer to process a loan. Credit unions and banks often have to rely on manual underwriting. Meanwhile, online lenders can process loan applications through algorithms which speeds up the whole thing. It helps that you know the loan processing turnaround time though to know what to expect.
If you’re referring to a direct lender online, expect that the whole transaction will be significantly faster. considered ideal for people that need loans fast, online direct lenders also offer the most convenience since applicants need not come to an actual office to sign up for the loan. The whole application process usually only takes 15 minutes especially if you have already gathered all the necessary documents and information required ahead of time.
Some lenders can get you approved in just a few minutes, especially if you happen to have an outstanding credit score. There are other lenders though that may take a little longer to review the information you have provided before they will ask you for other supporting documents.
If you wish to refer to banks and credit unions when taking out a loan, expect that the approval process may not be as fast as online lenders. One of the reasons why is that banks tend to adhere to stricter credit standards. They will usually take more time to get applications reviewed before giving it the stamp of approval. In addition, traditional lenders may not possess the kind of technology that many online direct lenders have so they need to get their staff to manually underwrite the loans. As a result, they take more time. Being prepared with all the information and other supporting documents that they will need can sure help speed up the approval process.
Getting a Car Loan with Fair Credit
If your credit score falls between good and bad, then you have fair credit. A fair credit means your credit is okay. It’s not excellent but it’s not too bad that you will have difficulty getting a loan.
In reality, the people that get the best interest rates for their loans are those with excellent credit. Having fair credit means you won’t be able to get the best loans deals in the market.
Your credit score is what lenders look at to gauge your creditworthiness. It will be easy to get a loan for a car or a house because the lender can simply repossess the property or asset. A personal loan, on the other hand, is considered an unsecured form of borrowing. This is why lenders sometimes require the borrower to provide a guarantor to co-sign the credit agreement or attach collateral to secure the loan.
There are many sources of personal loans for fair credit. You can apply for a loan from banks or mainstream loan providers, but since these firms have strict lending requirements, you may find it difficult to obtain a loan even if your credit score is fair.
Online lenders are easier to work with and they cater to borrowers with different credit ratings. You simply need to get online and accomplish a form to request a loan. Loan processing and approval are faster than going to a traditional financial institution. Once you get approved for a loan, you can get the funds that you need in a matter of hours.
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