Secured or unsecured car loans:
What's the best option?
Estimated read time: 2 Minutes
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 budget and better understand the car loan that 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 extend the loan term further than with an unsecured car loan.
What is an unsecured car loan?
The advantage of an unsecured loan is that you don't have to put anything up as security. The application is supported by your creditworthiness, rather than your assets (such as a car or a house).
Unlike a secured loan, which tend to use an asset as collateral, there’s no ‘easy’ way for lenders to recover their funds if you default on your repayments. Because the risk to the lender is greater, unsecured loans also often come with higher interest rates, a lower borrowing limit and 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 our secured or unsecured car loan options..
Want to see how much your individual rate and repayments might be on a 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.
All applications for credit are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.
Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.
Pepper Money Limited ABN 55 094 317 665; AFSL and Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.
Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.
