Secured or unsecured car loans: What's the best option?

lady choosing between secured and unsecured car loan

 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 understand what your actual budget is and what you can afford.

What is a secured car loan

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

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.

secured loan vs unsecured loan

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:

Fixed interest rate
A fixed interest rate is when the interest rate on your loan remains the same for an agreed timeframe. This gives you budget certainty, knowing what your repayments will be for the duration of your loan.
Variable interest rate
A variable interest rate is when the interest rate on your loan  rises and falls according to market trends.
Comparison rate
Comparison rate is the interest rate when calculated to include any establishment, ongoing or monthly account keeping fees. This can be a handy way to fairly compare different rates and products from different lenders.

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. 

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.

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