Unsecured Car Loans
If you’re thinking of buying a car and need a loan, you may be wondering which options will best suit your personal finances. If you’re looking for a way to finance your car purchase without jumping through too many hoops, you may find an Unsecured Car Loan worth considering.
At RateCity, not only can you compare the differences between secured and unsecured car loans, but you can also learn more about the benefits and drawbacks of the different options, to better determine which car loan is the right match for your financial situation.
Benefits of an unsecured car loan
Many of Australia’s car loans are Secured Loans, where the money you borrow is guaranteed against the value of your car purchase. Secured car loans offer many benefits, such as lower average interest rates, thanks to the reduced risk they represent to lenders.
However, if you take out a secured car loan, you may lose your car if you don’t meet your loan repayments. You may only be able to use a secured loan to buy particular car models, or cars under a certain age. And because the money you borrow will need to be secured against the car’s value, your loan may not cover other expenses such as car insurance and registration, which will need to be paid for separately.
Unsecured car loans, on the other hand, don’t need to be secured against the value of an asset, so you’re more likely to be able to buy cars of different models and ages. If you rely on your car and don’t want to risk having it repossessed, an unsecured car loan will let you retain access to your wheels, even if the worst should happen. Also, the amount you borrow in an unsecured car loan doesn’t have to be strictly limited by your car’s value, so you may be able to borrow some extra money to pay for insurance, rego and other car-related expenses.
Drawbacks of an unsecured car loan
It’s important to always acknowledge the risks involved with any car loan or other personal loan. Because by definition unsecured car loans don’t have any security, lenders see them as higher risks, and usually charge correspondingly higher interest rates, increasing your monthly repayments.
Also, the more you borrow with an unsecured car loan, the more you’ll have to pay back, which in turn means paying more interest. So if you use an unsecured car loan to not only pay for a car, but its insurance and rego too, the ongoing interest costs on this higher borrowed sum can quickly start to add up.
Fixed vs variable rate car loans
If you like the look of an unsecured car loan, the next question to ask is whether it comes with a fixed or variable interest rate. Much like secured and unsecured car loans, these options each have their own benefits and drawbacks.
Choosing a car loan with a fixed interest rate means agreeing to pay a set amount of interest as part of your loan repayments every month. While this helps to keep your monthly repayments stable, and your household budget nice and simple, it also means you won’t get to save money if your lender cuts its interest rates.
A variable rate car loan means the amount of interest you’ll pay may change from month to month, potentially lowering your repayments if there’s a rate cut, saving you some money. On the other hand, if your lender raises its interest rates, your monthly repayments would increase, which could leave you out of pocket if your household budget isn’t ready.
What is a Comparison Rate?
Did you know that the unsecured car loan with the lowest advertised interest rate may not actually be the cheapest option for you? A low-interest car loan with high ongoing fees and charges could end up costing you more in total than opting for a higher-interest car loan with lower ongoing fees and charges.
A car loan’s Comparison Rate offers a simpler way to work out approximately how much it may end up costing you. Expressed as a percentage, this figure combines the loan’s advertised interest rate with its standard fees and charges. Comparison rates can be used to help you narrow down your potential car loan choices by cost.
Keep in mind that even a car loan’s comparison rate may not take its every cost into account – some nonstandard charges and expenses could remain separate to the figure. Also, you should investigate the other features and benefits offered by each car loan option before making a decision, as these aren’t factored into the comparison rate either.
Does paying off a car loan early cost you extra?
While buying a car with the help of a car loan is a pretty great feeling, owning your car outright feels even better. With this in mind, you may be tempted to pay extra money into your car loan when the opportunity arises, such as when you receive a tax refund, a bonus, an inheritance, or that one-in-a-million lottery win we’re all hoping for. By making extra repayments and getting your car loan paid off ahead of time, you’ll save money by reducing the total interest you pay over the lifetime of your loan.
However, some lenders charge fees for making extra repayments or exiting a loan early, to make up for the interest payments they’d be missing out on. These fees tend to be more common with fixed rate car loans that have set repayment plans, though they are sometimes also found in variable rate car loans. If you’re hoping to pay off your car loan ahead of schedule, make sure you won’t find yourself paying more than you expected for the privilege.
Can you withdraw money from your car loan?
If you’re looking at unsecured car loans because you like the sound of the flexibility they offer, then you may also want to find out which car loans include the option of a redraw facility. If you make extra repayments and get ahead on one of these loans, you’ll be able to use the redraw facility to withdraw these surplus funds when required, subject to the lender’s terms and conditions.
So if you’ve ever worried that making extra repayments onto a car loan could leave you unable to access your spare cash in case of emergency, a redraw facility can help you keep your funds accessible when required, while still helping to bring you closer to a fully paid-off car loan.
What if you don’t have a deposit?
While unsecured car loans don’t require you to use your car as collateral to guarantee your loan, you may still need to pay a deposit to provide some security to your lender. However, if the state of your savings means you can’t currently afford a full deposit on the car you want, there may still be options available to you.
Some lenders offer car loans with a high Loan to Value Ratio (LVR), where you borrow a greater percentage of your car’s value and pay a smaller up-front deposit. Some lenders also offer 100% loans, also known as no-deposit loans, where you borrow the full amount from the lender. Because these loan types represent greater financial risks to lenders, they tend to come with relatively high interest rates, so keep this in mind when working out your finances.
Checking your car’s history
Once you’ve done a bit of research on available car loans and worked out which options you prefer, it’s often worth also doing a bit of research on the car you intend to buy, and its financial history. You don’t want to complete the paperwork only discover that the car has money still owing on it from a previous owner!
To avoid being surprised by a financial encumbrance when buying a used car, it’s worth organising a Personal Property Securities Register (PPSR) report, previously known as a REVS check. You can organise one of these reports for yourself, though some lenders will be able to take care of this for you while they’re putting together your car loan, though some lenders will charge an extra fee for the service.
Compare unsecured car loans
You can find and compare a variety of car loan options at RateCity, including unsecured car loans. By looking at the advertised interest and comparison rates, as well as their other features and benefits, you can narrow down your options before making your final decision.