When I was younger, I remember dreaming all the time about my sweet sixteen. We see it all the time in movies and television shows – your sixteenth birthday is when your parents get you a cool new car (or a used one, which is still cool), and you get to start riding all your friends to school. Maybe you even get stuck driving your kid sibling around to their activities, and you bemoan your fate, but you’re really just glad to have a car of your own.
Lo and behold, though, when I reached that tender age, my parents…definitely were not able to afford something like that. Honestly, it’s not something that I resent or feel bad about in the slightest. No one that I knew was given one either, and I think most of us were able to just take a step back and recognize the fiction of the whole thing.
Now, maybe you’re wondering why I’ve spent so much time talking about this, and I can’t really blame you for that. I do have a good reason for it though, believe it or not. You see, all of this was to say that once I was heading off to college, buying a car for myself was something I had to think long and hard about.
There were a lot of pros and cons to weigh, of course. I mean, obviously, the fact that I would be able to drive myself around and go pretty much anywhere that I wanted was a big plus. However, the parking fees for most universities are rather high, and my undergrad was no exception to that. In addition to that, though, gas isn’t exactly cheap either.
Since my job was right on campus, I didn’t really end up needing a vehicle until I graduated, so I waited even longer to cross that bridge. While it’s not a decision I regret, given the fact that I saved myself some of the stress that comes with the process, that didn’t make things any easier when I did finally set about purchasing my first car.
Whether you’re also experiencing it for the first time or you’re a veteran to the process, there’s a certain level of trepidation involved. Because of that, I’d like to help walk people through it in a way that’s as easy to understand as possible. If that sounds appealing to you, then stick around!
What are Auto Loans?
For the most part, these loans are considered what is known as a “secured” loan. However, that doesn’t always mean that it requires collateral in the traditional sense of the word. Typically, we think about “collateral” as something that the lender is given that they can then take away if the borrower is unable to make their payments.
Most auto loans sort of act like this, but the reason that it is secured is that the creditor can eventually take the vehicle away if you are not making your payments on time or breach your contract in another manner. So, when you hear about søk billån uten sikkerhet, that’s what it is referring to (usually, at least).
Now, this can actually look different depending on where you live in the world. While in the United States, you usually cannot find a way to get an auto loan without having the vehicle itself up as collateral, in a country like Norway, this is not necessarily the case. Instead, you actually can find credit agreements that will allow you to do so.
Of course, there are some tradeoffs, but I’ll be discussing that further down the line. For now, make note of the three different types of them that are available in Norway: green car loans, loans with security, and loans without collateral. Each will have its own pros and cons.
Green Car
These are fairly unique, which is why I want to cover them first. If you have been considering looking internationally for a lender, this may just be something that convinces you. Essentially, it’s a credit agreement geared towards allowing borrowers to purchase automobiles that do not emit the carbon or other harmful greenhouse gasses that are harming our environment.
Of course, this sort of thing probably isn’t going to appeal to everyone. However, for those that are already environmentally conscious, this will probably seem like a sweet deal to you. If you opt to get a zero-emissions style car, you might end up eligible for lower interest rates or even not needing to make that initial security deposit.
It’s not a guarantee there, of course, but it’s worth noting at the least. In terms of the pros and cons, they’re pretty simple here. The positives are, of course, the fact that you’ll probably get a lower interest rate, and that you can even apply for one after you’ve made your purchase (so long as you can provide some proof of purchase). The negative is that you can only use it for a car powered by hydrogen or electricity, which some people would definitely consider to be much too restrictive.
Loans With Security
Now, these are the type that will probably be more familiar with a lot of the readers here. This is when the collateral is the vehicle itself, thus making the loan a secured one. As I mentioned above, if you default on it, the lender is able to repossess that automobile – making it a bit risky for the borrower in that sense.
Because of that, though, they do tend to come with lower interest rates than some of the alternatives since the lender is not the one assuming most of the risk involved. Additionally, if you’re confident that you can make your payments on time, then there is really not all that much to worry about here.
That being said, I can understand why some borrowers are hesitant to sign any contracts for secured loans. The threat of potentially losing something that you worked hard to afford a down payment for is nerve wracking to say the least. Alongside that, there’s also the fact that you’ll be required to have auto insurance, tacking on another cost that some folks may not be overly prepared for.
Loans Without Security
Shifting focus to the most interesting one I’ll be covering today is the auto loan that doesn’t actually require that collateral that we’ve been discussing. Before we get too much further here, I do want to make note that they tend to have much higher interest rates than the former two that we’ve discussed – that’s probably the biggest trade-off involved.
However, despite that, they remain a very popular option, and there are plenty of reasons for that. For one thing, often these don’t require you to contribute to the down payments. That alone sets them apart, but there’s more to know as well!
You see, because the vehicle isn’t on the line, you aren’t required to get it insured, either. While it’s still generally a good idea to get at least some coverage, you won’t feel pressured into getting the most expensive plan just to please your lender. Alongside all of that, there’s also the fact that you can apply for one of them pretty much any time that you want, and you do not have to buy the car immediately. You can wait for the right time while still capitalizing on lower interest rates (when applicable).
As far as the cons go, though, it is a good idea to keep them in mind. Obviously, the biggest one is the fact that you’ll get charged more in terms of interest. However, there is also the fact that the repayment periods are typically a lot shorter, which can mean you’ll be paying more each month.
Are Auto Loans Without Security Worth it?
Here we are at the penultimate question of today’s article…are they still worth it despite the higher interest rates? I know it’s kind of lame to respond with “it depends” or “you’ll have to make that decision,” but really, that’s how it is. I can’t exactly tell you “yes” or “no” to the question, since I don’t know your financial situation or what would be most appropriate for you.
No matter what sort of auto loan that you go for, there’s going to be a lot of planning involved. During that stage is when you can sort out whether or not you want to aim for one of these. If you’re not worried about high monthly costs, for example, then it’s not going to be something to sweat.
However, if a high monthly repayment schedule sounds stressful to you, you may want to opt for the traditional style of car loan. Thankfully, most lenders are more than happy to work with you to determine which one would be the best solution for you. So, if you’re feeling uncertain about it at any point, feel free to get a consultation with your lender.
Either way, though, just remember to borrow as responsibly as you can. When you’re selecting a vehicle, be realistic about what you can afford. Sometimes, it can be easy to get swept up in the sales pitch at the car lot. However, at the end of the day, it’s probably not necessary to get every single upgrade that they’re telling you about.
Get what’s going to be practical for you and your family. You don’t have to sacrifice quality for cost, either, especially if you’re getting assistance from a financial institution, but there’s no need to buy the most expensive car on the lot if it’s not in the cards for you right now.