There are a few differences between secured and unsecured car loans. Most significantly, unsecured loans are not guaranteed against the value of your vehicle or another asset. This means that if you default, the lender can’t possess your car to minimise their losses, so they are riskier for lenders. Because of this, unsecured loans tend to charge higher interest rates than secured loans.
Unsecured loans may offer greater flexibility in terms of how you can spend the money. For example, some unsecured car loans may be used to pay for your car registration, car insurance and other costs. In contrast, secured loans are often limited to the value of the vehicle itself.
Because a secured car loan is guaranteed by the value of the car, some lenders limit them to purchasing new cars only, or used cars under a maximum age limit. This helps to ensure that the car isn’t near the end of its useful lifespan, and should still retain enough value to secure the loan. Because unsecured car loans don’t need to be secured by a car’s value, you may have some more flexibility in your choice of vehicles to purchase.