What is a secured car loan?
If you’ve got your eye on a car, but don’t want to spend all your savings you may be considering a car loan, and getting it secured may mean getting a better rate.
If you’ve got your eye on a car, but don’t want to spend all your savings you may be considering a car loan, and getting it secured may mean getting a better rate.
When you secure your loan against a vehicle, you are making an agreement with your lender that they can repossess the car if you do not meet your loan repayments.
This means if you couldn’t repay the loan, the bank would be able to sell your car to recoup its money.
It gives you and your lender an agreement that often gets you a better interest rate.
Why choose a secured car loan?
A secured car loan is typically cheaper and safer than an unsecured loan because of the tangible asset (the car) that the lender can repossess if the loan obligations are not met.
Lower interest rates mean lower repayments. If you secure your loan, it is likely you can afford to borrow more, or you can use your savings to invest in the little things that make your car more enjoyable. It’s your money and your choice.
You can also often borrow more with a secured loan, then you can with an unsecured one.
Secured loans also allow you to gain approval faster, as the lender has the car as collateral should you be unable to pay back your loan.
Secured car loans are a win win for you and your lender, you get the car faster, and with a cheaper rate, while your lender has reassurance should you default on the loan.
What is an unsecured loan?
If you don’t want to take out a secured car loan, some lenders will also give you the option of an unsecured car loan.
However, unsecured car loans generally have higher interest rates, stricter conditions, and longer wait times for approval.
Also, they are very risky because if you did default on an unsecured car loan, you would still be responsible for the debt.
So having an unsecured car loan doesn’t absolve you of responsibility if you fail to repay the loan.
How to compare secured car loans
Helpful tool: Car Loan calculator
Features of Secured vs Unsecured car loans
| Secured | Unsecured |
|---|---|
| Lower interest rate | Higher interest rates |
| Higher borrowing limits | Need a better credit history |
| Longer repayment terms | Bigger risk for lender |
| Approval within 24 hours | Extended wait times |
| Early payout available | Early payout available |
| Weekly, fortnightly and monthly repayment options | Weekly, fortnightly and monthly repayment options |
| 3-7 year loan term available | 1-7 year loan terms |
Example:
A secured $25,000 car loan over five years could cost you around $1,000 less in interest costs compared to an unsecured car loan.
| Secured loan | Unsecured loan | |
|---|---|---|
| Loan amount | $25,000 | $25,000 |
| Interest rate | 5% p.a | 6.50% p.a |
| Monthly repayments | $471.78 | $489.15 |
| Total loan payable | $28,306.85 | $29,349.22 |
Disclaimer: This estimate doesn’t factor in fees on your car loan, what your balloon payment is, any possible introductory rates and whether or not your rate changes if you take out a variable loan.
How to compare secured car loans
What to consider:
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Interest rate
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Ongoing fees
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Application fees
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Repayment frequency (weekly, fortnightly, monthly)
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Total loan amount
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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.
