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What is a secured car loan?

Secured Car Loans - what you need to know | RateCity

A secured car loan is a loan for which you offer the lender some sort of security, or collateral.

Generally, that security is the vehicle itself.

The reason a lender will ask for security is so it can recoup its debt if you fail to repay the loan.

In that scenario, the lender would seize your vehicle, sell it and then use the proceeds to settle the debt.

If the proceeds are greater than the amount owing, you would receive the balance.

But if the proceeds are less than the amount owing, you would still be liable for that outstanding debt.

Secured car loans vs unsecured car loans

If you’re unwilling or unable to take out a secured car loan, some lenders will also give you the option of an unsecured car loan.

However, unsecured car loans generally have higher interest rates than secured car loans. Also, if you did default on an unsecured car loan, you would still be liable for the debt.

It’s possible that the lender might then take you to court or that you would be forced to declare bankruptcy. 

So having an unsecured car loan doesn’t magically absolve you of responsibility for failing to repay the loan.

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Learn more about car loans

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

What is collateral?

Collateral, or security, is an asset you agree to surrender to a lender if you fail to repay a loan. Generally, the collateral for a car loan is the car itself. So if you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.