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Zero Creatives/Getty Images October 11, 2022 Dana Dratch is a personal finance and lifestyle writer who enjoys talking all things money and credit. With a degree in English and writing, she likes asking the questions everyone would ask if they could and sharing the answers — along with smart money management tips from the experts. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Traditionally, loans for big-ticket items — like homes and cars — use the item being purchased as collateral. If the consumer stops making payments, the lender can seize that collateral to cover the unpaid debt. An unsecured auto loan — or a — requires no collateral. Instead, if the borrower can’t pay, creditors can report the default to the credit bureaus and go to court to force collection since there is nothing to be repossessed. How unsecured car loans work
An unsecured car loan is a personal loan used to purchase a new or used car. Since the loan is unsecured, the lender cannot your car if you stop making payments. Instead, the lender can report the default to the credit bureaus and sue you. On the downside, an unsecured loan’s and qualification standards are typically higher due to the lack of collateral. Obtaining an unsecured car loan is similar to applying for a personal loan. You can begin by searching online for lenders who offer this type of loan and then visiting lenders’ websites to learn about the application process. Check your current bank and local credit unions to find out whether they offer unsecured loans. Once you find a lender whose terms and interest rates work for you, submit your application and the required documentation. Documentation generally includes information about your employment history, income, residence, debts and savings. As part of the application process, lenders will also pull your credit score. Most lenders have minimum score requirements. Lenders often reserve their best interest rates for credit scores from 720 up. When you’re approved, the lender will usually send you the complete proceeds of the loan. You can then go to the car dealership or private vehicle seller as a cash buyer using the funds from your unsecured car loan. Benefits of unsecured car loans
So why opt for an unsecured auto loan? Simplicity, says Kristin Shuff, LightStream’s senior vice president of marketing. “One of the easiest ways to make that simple for people with was for someone not to have to do title and extra paperwork, so they can be a cash buyer,” she says. Buyers can get the money before they have even decided which car they want to buy, Shuff says. If they change their minds at the eleventh hour and decide on a different car or a different dealer, they don’t need the bank to cut another check. “It really gives the client flexibility,” Shuff says. “If a consumer could get a better rate and less paperwork and more flexibility, that’s a win-win for them.” While doesn’t need to know what kind of auto the borrower is purchasing ahead of time, it does reserve the right to request proof that the money was used to buy a car, she adds. Where to get larger unsecured loans
Many lenders make five-figure unsecured loans to consumers who qualify. Check with a bank or credit union you currently do business with before moving on to compare other lenders. For example, LightStream offers unsecured auto loans of $5,000 up to $100,000. For those with excellent credit who sign up for autopay, rates range from 5.73 percent to 19.99 percent as of October 2022. SunTrust Bank started making unsecured auto loans through its online arm, LightStream, in March of 2013, says Shuff. And makes unsecured loans of up to $35,000. Typically, unsecured loans of this size should be reserved for cars you can’t finance with a secured loan. These can include collectibles and antiques. Credit score requirements vary with the borrower, their circumstances and the loan, but applicants should have credit scores above 680, Shuff says. “The score is not as important to us,” she says. “We look at income and assets.” Secured car loans are easier to get
Qualifying for an unsecured loan generally requires: A solid credit score A borrowing history that shows a track record of consistent, on-time payments A reliable source of income Secured car loans require providing collateral to obtain approval. The lender keeps the car title until the loan is paid in full. Banks generally offer better interest rates and more flexibility on qualification for because the car acts as collateral, says James Kendrick, vice president of accounting and capital policy for the Independent Community Bankers of America. The bank can more easily recoup its funds if the borrower defaults. “It allows more buying power,” he says. The bottom line
Using an unsecured personal loan can provide buyers who have excellent credit with flexibility during the car shopping process. If you change your mind about which car you want to buy, you won’t need to revise your application with the lender. If you’re considering an unsecured loan, do your research first to learn more about the interest rates and terms associated with this type of borrowing. SHARE: Dana Dratch is a personal finance and lifestyle writer who enjoys talking all things money and credit. With a degree in English and writing, she likes asking the questions everyone would ask if they could and sharing the answers — along with smart money management tips from the experts. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Related Articles