Secured or unsecured car loans: What's the best option?
You've decided to buy a car and are thinking of financing it with a loan. But what loan options are available to you?
Understanding the difference between secured and unsecured loans could help you understand what your actual budget is and what you can afford.
What is a secured car loan?
A secured loan is borrowed against an asset of greater value – in this instance a car. The car acts as collateral for the lender against the amount you intend to borrow.
For example, if you want a loan of $40,000 to buy a ute for your business, the vehicle can be used as security for your loan. The loan is known as 'secured' because if you’re unable to make your repayments, the lender may repossess the asset and use the funds from its sale to repay your outstanding loan balance.
Secured loans tend to have lower rates than unsecured loans and you might be able to borrow a greater amount or stretch the repayment period longer.
What is an unsecured car loan?
Unlike a secure loan, unsecured loans don’t use an asset as collateral, meaning that there’s no ‘easy’ way for lenders to recover their funds if you default.
The advantage of an unsecured loan is that you don't have to put anything up as security – however, if you meet your repayments then there really is no risk to the asset. Unsecured loans also often come with higher interest rates, a lower borrowing limit and a shorter loan-repayment terms compared to secured loans.
Understanding interest rates
There can often be a lot of jargon associated with car loans. Here’s a quick rundown of some common interest-related terms:
Want to know more? We're here to help
When you’re thinking about which car loan best fits your situation, it all depends on the circumstances you’re in and what your financial goals are. Thankfully, we’re here to help. You can chat to one of our team on 137 377 about whether a secured or unsecured car loan is better for you.
Want to see how much your individual rate and repayments might be on an unsecured car loan? It will only take a few minutes, and it won't affect your credit score.
Need some help with your car loan?
Whether you're buying your first car, a new business vehicle or are making the switch to electric - our resources are here to make sense of all that finance jargon.
Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
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