Secured Car Loans

Car loans are just personal loans designed to get you the vehicle you want. They come with a variety of different features to suit different financial situations. Secured car loans are among the most popular as they allow you to minimise interest costs. 



What is a secured car loan?

A secured car loan is a personal loan that is guaranteed against the value of an asset, usually the car itself. This means that something valuable will act as ‘security’ against your loan in case you can’t pay it off, in which case the lender may seize the asset to cover their losses. This type of loan reduces the financial risk to the lender, so secured loans typically charge lower interest rates than unsecured loans.

What assets can be used as collateral to secure a loan?

There are a few types of assets you can use to secure your loan besides the car you want to buy. These may include:

  • Cars you already own
  • Real estate, including equity in your home
  • Shares or managed funds
  • Savings or investment accounts

Make sure you fully understand the risks involved with securing your car loan with an existing asset before proceeding. If you default on the loan, the lender may have legal right to seize that asset. 

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What are the benefits and risks of a secured car loan?

As a secured car loan is guaranteed against the value of your car or another asset, lenders won't generally lose money if you default. This means they will charge lower interest rates compared to unsecured car loans. 

Secured car loans may be a competitive option for borrowers with less stable finances such as contractors or the self-employed, as they may be more likely to be get approved finance.  Those with poor credit history too have a higher chance of receiving approval for a secured car loan. This is because the security of the car reduces the risk to the lender. However, be aware that if you default on your secured car loan, you can lose the car itself.

There may also be limitations as to what kind of car you can buy with your secured loan. As mentioned above, some lenders only offer secured car loans for brand new cars, or used cars under a certain age. Others may refuse to offer secured loans for certain car models or sports cars.

How do you choose a secured car loan

The best way to compare secured car loans is to look at their rates, features and fees. Use RateCity’s comparison table to examine the following loan characteristics: 

What to look for About
Loan amount How much you want to borrow for the vehicle.
Loan term How long the loan will be. Typically around 5 years but can go as high as 10.
Loan type Choose between secured or unsecured loans.
Interest rate The lower the rate, the less interest you’ll pay over the life of your loan. This is important, but not the only thing to consider when comparing loans.  
Interest rate type Choose between a fixed or variable loan. Fixed rates allow for easier budgeting as your repayments won’t change. Variable rates mean if your lender passes on a rate cut, you’ll pay less. However, if there’s a rate hike, you’ll have to pay more. 
Fees Can include upfront, annual, ongoing or early exit fees.
Features Some loans come with helpful features. These can include the ability to make extra repayments and a balloon payment, or a  lump sum that you pay at the end of your car loan.

What documentation do you need for a secured car loan?

Before you apply for a secured car loan, make sure you’ve organised your paperwork.

This may include, but is not limited to:

  • Personal identification such as a driver's licence or passport
  • Proof of income
  • Copies of bank statements
  • Copies of bills
  • Information on any debts you may have (such as credit cards) 
  • Information about the car you want to buy

Secured versus unsecured loans

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 offer greater flexibility in terms of how you can spend the money. They can be used to pay for your car registration, insurance and other costs, for example. Secured loans are limited to the value of the vehicle itself. 

What about encumbrance/PPSR check fees?

It pays to confirm a car’s financial history before agreeing to a purchase. This is just in case the vehicle still has money owing on it. You can confirm a car’s history with a report from the Australian Government’s Personal Property Securities Register (PPSR), formerly known as REVS. Some lenders can organise this check for you as part of their service, though this may cost you extra.