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Is a Car Loan Secured or Unsecured Debt?

Car loans are a form of secured debt.

Secured debt is loan that is backed up by collateral for the lender to go after in case the borrower defaults on paying back the loan. Collateral can be income or a physical asset such as a house. In the case of a car loan, the collateral is typically the vehicle being purchased with the loan. In rare cases, car loans are secured by a savings account at the institution lending the money. This is savings-backed auto loan, a product available through many credit unions. In this case, the loan is still a secured debt. The collateral is simply money in an account, as opposed to the vehicle itself.

On the other hand, unsecured debt is debt that is backed by nothing more than a high interest rate and promises. Credit card debt is unsecured which means that the creditor has a very tough time getting repaid if the borrower defaults. Of course, even if these creditors have trouble recovering the debt, they have their own methods of recourse.  They can send the debt to collections, resulting in a severe negative impact on the consumer’s credit score. There is such a thing as a secured credit card – a card that uses an initial deposit as collateral. These cards are a popular way for people to build or improve their credit.

In the market for a secured auto loan? Go here to apply online for credit. We have lenders and dealers standing by, ready to fund your loan.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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