Secured vs Unsecured Car Loan
When you’re shopping around for car loans, you’ll likely encounter loan offers such as secured and unsecured car loans. But what are they exactly, and how do you find the best one for your situation?
In this article, we outline the differences between these two car loan types. Read on to learn more and see which one is best for you:
What is a secured car loan?
A secured car loan is a type of loan where the car you purchased is secured against the loan. In other words, the vehicle acts as a guarantee or collateral, and the lender registers an interest in the car while it is under finance. When the car loan is paid off, the lender will be removed, and the car will be wholly owned by the customer. If you don’t make your repayments on your secured car loan, the lender has rights to repossess the car to recoup costs or settle your loan balance.
Because the car is used as collateral for the loan, lenders typically offer lower interest rates and/or better loan terms because there’s less risk to the lender. Often, secured car loans have higher borrowing limits, giving you more car options.
What is an unsecured car loan?
An unsecured car loan does not use the car you’ve purchased as security. Due to the lack of guarantee, lenders who provide unsecured car loans typically offer them at a higher rate compared to secured ones, have stricter conditions, and may also have more stringent application approval requirements.
As a borrower, unsecured car loans may pose additional risk as well. If you fail to make your regular repayments, you’re still responsible for your debt, and your lender could pursue legal actions.
Secured vs Unsecured Car Loan
Here’s a quick overview of the differences between a secured and an unsecured car loan:
| Secured Car Loan | Unsecured Car Loan | |
|---|---|---|
| Interest rate | Typically has lower interest rates compared to an unsecured car loan | Typically has higher interest rates compared to a secured car loan |
| Borrowing limit | May offer higher borrowing limits, giving you more car options to choose from | May offer smaller borrowing limits, which could restrict your car options |
| Loan features | May offer more loan features for better flexibility | May offer limited car loan features |
| Loan repayment frequency | Weekly, fortnightly and monthly repayment options | Weekly, fortnightly and monthly repayment options |
| Loan term | Between three to seven years | Between one to seven years |
The full terms, conditions, and features of a car loan depend on the lender. For more information about your car loan options at loans.com.au, check out our range of car finance offers.
Which one is the better car loan?
There is no clear-cut right or wrong answer. Everyone’s situation is different. When looking for the perfect car loan, you need to think about your personal financial situation to see what type of finance solution suits your needs best. Here are a few factors to consider before deciding:
- Interest rate
- Interest type (variable or fixed)
- Ongoing fees
- Application fees
- Repayment frequency (weekly, fortnightly, monthly)
- Loan features (balloon payment, redraw facility, additional payments, etc)
You can calculate your potential repayments and estimate the overall cost of your car loan using our online car loan calculator.
Let loans.com.au help you find the right car loan
Buying a car is an exciting purchase—whether it’s your first car or your next car. The challenging part is getting your finances sorted. That’s where loans.com.au comes in. We offer competitive rate car loans with useful features to help you save money and make managing your loan easier.
Start your application today by filling out an online application. Or you can learn more about our car loan offers by calling 13 10 90!
Find out in under 2 minutes if you qualify for one of our car loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
