Secured or unsecured car loans:
What's the difference?
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 interest rate and repayments might be on a car loan? It will only take a few minutes, and it won't affect your credit score.
Contributor | Andrew Gamble, Head of Sales - Asset Finance
Andrew brings more than 20 years of experience in the finance industry. His strategic vision, leadership and his customer centric approach has contributed to the significant growth of Pepper Money's Asset Finance business. Read more.
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