Both mortgages and auto loans are regarded as secured loans since they require a collateral as a form of security. They both requires a down payment when you apply. Do you know why they are referred to as secured loans? Both mortgages and auto loans are secured loans because the new home you want to purchase or refinance, your new or old car becomes a collateral respectively.
The lender is entitled to repossess the collateral which is your home or car in case you default. Both loan types are risky to the borrower since they can loose both the property and loan amount to the lender when they fail to make repayment.
Both mortgages and auto loans
The similarities between mortgages and auto loans might not be much although they both have collateral involved. They operate differently and their loans are different based on requirements. Let’s take a look things we can similarly find here;
- There is a lender who provides the loan and a borrower who applies.
- There is a collateral involved, the house and car becomes a form of security.
- Lender takes over your collateral when you fail to make repayment.
- Interest rates rarely changes.
- A down payment is required based on the purchase price of the car or home.
- Providing payment stubs, tax returns and bank account statements.
Difference between a mortgage and auto loan
Despite their similarities, there are also several things that go on here differently.
- Mortgage loan amounts are higher than that of auto loans.
- Auto loans do not necessarily need much documents or requirements to proof your credibility of repayment as compared to mortgage loans.
- Documents and requirements varies from state to state.
- Credit score requirements are different for both mortgages and auto loans.
- Proof of auto insurance auto loans and proof of homeowners insurance for mortgage loans.
- Auto loan lenders provide quicker approval response as compared to mortgage lenders. You can even get same day auto loan lenders provided all your information are right.
Which is easier to get: Mortgage or Auto loan ?
Since auto loans doesn’t involve much paperwork and the money is not that huge as compared to mortgage loans, you can get auto loans easy.
Does an auto loan affects a mortgage application?
The answer is yes. Auto loan is a form of debt which mortgage lenders will use to access your affordability before deducting it from your income.
Missing payment or defaulting on auto loans will surely affect your credit score will impact on a mortgage loan application.
