People take out loans for all manner of reasons and all manner of objectives. Some want that dream holiday that they would never be able to afford otherwise, others are after the latest piece of gadgetry, while a substantial amount just want to consolidate their debt. Another major reason why people choose to take out a loan is to fund the purchase of a car and secured car loans are becoming ever more popular with the general public.

A secured car loan works in much the same way as a secured homeowner loan in that the borrower provides the lender with collateral as security against them defaulting on repayments. This collateral is usually the borrower's home and if the borrower does renege on payment the lender has the option of selling this property to recoup their financial losses. The only difference is that the loan is provided specifically for the purchase of a vehicle rather than whatever else the borrower wants to spend it on.

There are other alternatives to a secured car loan and each have their own strengths and weaknesses. For years the most common way to fund the purchase of a car was through Hire Purchase. Hire Purchase is, in fact, a form of secured loan with the collateral being the vehicle itself rather than the borrower's property. The borrower does not purchase the car outright but rather ‘hires' it until all the repayments have been made. If the borrower defaults on repayment the car will be repossessed. The advantage of this kind of scheme over a secured loan is that you are not putting your home on the line (although if you really grow attached to the car losing that can be almost as bad) but it can be frustrating to feel that you do not own the vehicle outright until everything has been paid off. With a secured loan the car is yours straightaway as you are not borrowing from the car finance company itself. Also the rates of interest on a secured loan will generally be lower than that on a Hire Purchase agreement so it does make better financial sense to take out a secured loan. Hire Purchase agreements are declining in popularity for this very reason.

Another option is to part exchange your existing vehicle to cover some of the cost of buying the new one. This is an appealing prospect as it feels like your prior purchases are helping to fund new ones and it is also a convenient way of getting shot of your old car. However be careful about the quotes the manufacturers or dealers give you as they may try to downgrade the amount that your car is actually worth in order to ramp up the remaining payments. In some cases selling it personally could make you more of a profit.

If you are the kind of person who likes switching cars every couple of years there is also the option of a Personal Contract Purchase or PCP. This scheme effectively leases you the car for a fixed period after which you can choose whether or not to buy it. You pay a deposit and the familiar series of payments until the contract runs out, when this happens you have to make a decision. You can give the car back to the dealer and pay nothing more; if you do this then you have basically hired the car for the duration that you have had it. Alternatively you can go ahead and pay the remaining amount to own the car outright; this amount is referred to as the Minimum Guaranteed Future Value. The last option is to give back this car and take out a fresh PCP on a new model. This scheme allows you a trial period with a particular car in order to see how much you like it and makes changing vehicles at regular intervals very easy and not too costly. However, there is again the frustration at feeling that you are merely borrowing somebody else's car for a specific period. Also if you are looking to retain the same vehicle for a relatively long period of time taking out a secured loan will prove to be a much cheaper alternative.

Secured loans are fast becoming the most cost effective means of purchasing a car. Interest rates are considerably lower on secured loans than they are on Hire Purchase agreements and there is the added satisfaction of owning the car outright rather than hiring it for a designated period. Secured loans are becoming easier and easier to get even with adverse credit as specialist lenders are constantly springing up online offering affordable terms and rates. So now there is no reason why you cannot go for that dream car that you have had your eye on for months.