Secured Car Loans
Car loans are essentially just personal loans, created with the specific purpose of getting you that car you’ve had your eye on. Just like personal loans, car loans come with a variety of options available to suit different financial situations, with secured car loans being among the most popular, due to the simplicity and stability of their arrangements.
Learn more about secured car loans at RateCity, and compare what the different lenders are offering to see which deal will be the best for you.
What is a secured car loan?
A secured loan is an arrangement where the money you borrow from a lender is guaranteed against the value of an asset. If you don’t pay the lender back, they seize your asset to cover their losses. Because this arrangement reduces the financial risk to the lender, secured loans tend to have lower interest rates on average than comparable unsecured loans.
While the security for a personal loan could be a piece of property or a similarly valuable asset, car loans are typically secured against the value of the car that’s being purchased. That way, if a borrower is unable to make their monthly repayments and defaults on their loan, the lender will simply repossess and sell the car to get its money back.
What are the benefits of a secured car loan?
To start with, because a secured car loan is guaranteed against the value of your car, lenders don’t have to stress as much about losing money in the event of a default, so they often charge lower interest rates for secured car loans than they would for similar unsecured car loans.
Secured car loans can also be valid financial options for borrowers with less stable finances (e.g. contracting or self-employed) or a poor credit history, as the security of the car as collateral mitigates a degree of the potential lender risk
What are the risks with a secured car loan?
Nobody wants to default on any type of loan – it’s bad news for your finances, and for your credit history – but if you default on a secured car loan, you’ll also lose your car! While paying the extra interest of an unsecured loan is typically a more expensive option from month to month, you won’t automatically end up a pedestrian if you run into financial trouble.
Also, because these loans are secured against the value of the car you’re purchasing, there are sometimes limitations as to what kind of cars you can buy with one. For example, some lenders will 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. These restrictions are to help make sure that if the lender is forced to repossess and sell the car, they can be confident they’ll make enough money to cover their costs.
Also, it’s worth noting that some secured car loans may only allow you to borrow up to the value of the car itself. This means you may need to pay separately for any extra vehicle expenses, such as rego and insurance. However, some lenders will allow you to borrow more than your car’s value with a secured car loan to cover these expenses – check the available offers for details.
How to compare secured car loans
One of the simplest ways to start narrowing down your secured car loan options is to compare the interest rates being charged by different lenders. The higher the rates, the more you’ll have to repay on your loan.
But to get a more complete idea of just how much a secured car loan may end up costing you over its lifetime, it’s also worth checking out its Comparison Rate, which combines the loan’s interest rate with its standard fees and charges. While this does give you a good guideline of the comparative costs of different secured car loans, remember that the comparison rate doesn’t include every extra cost of a loan, nor does it take into account any extra features and benefits that could influence your decision. It’s usually worth digging a little deeper and doing some extra research rather than relying on comparison rates alone.
Fixed vs variable interest rates
Because secured car loans are all about security (hence the name), they are commonly offered with a fixed interest rate. By agreeing in advance to pay a set amount of interest per month with your repayments over a set period of time, the lender can be confident they’ll get their money back, and you can be confident when preparing your budget, as you’ll know exactly how much you’ll be paying towards your car loan each month.
While secured car loans with fixed interest rates are quite simple to manage, and help to ensure regular progress towards paying off your loan, locking in a payment plan in advance often means losing some flexibility and options around how you can repay your loan – you may be required to stick to the agreed payment plan, even if your financial circumstances change further down the line.
Some secured car loans are available with variable interest rates, where the lender will adjust the amount of interest they charge from month to month. This can mean you’ll save some money if your lender passes on a rate cut, however you may find yourself out of pocket in the event of a rate rise, which can make variable rate car loans a little trickier to budget for.
That said, variable rate loans are more likely to offer you greater flexibility around your repayments, allowing you to put extra onto your car loan and get ahead when your finances are strong.
Early exit/extra repayment penalties
Imagine you find yourself with a bit of extra money available – maybe you have a tax refund to spend, or a rate cut leaves you with a surplus available in your personal budget. You may want to put this extra money onto your car loan, bringing you one step closer to exiting your car loan early, and reducing the total amount of interest you pay over the loan’s lifetime.
However, paying off your secured car loan early can sometimes be more expensive than you expect. Some lenders charge fees for making extra car loan repayments or for exiting a loan early, to make up for the interest payments they’d be missing out on. These penalty charges tend to be more common for fixed rate car loans with set payment plans. Variable rate car loans are often more flexible in their repayment arrangements, though they sometimes also charge early exit fees. Be sure to check your loan’s terms and conditions if you hope to pay your car off early.
The ability to easily make extra payments on a car loan is pretty handy, but so is being able to withdraw some of this cash if you run into a tight financial spot. A Redraw Facility on your secured car loan will allow you to do exactly that, making any extra money you’ve put on your car loan available in case of emergency. This added flexibility can come in very handy, though you should double-check your lender’s terms and conditions for any restrictions around how you can use their redraw facility.
Encumbrance/REVS Check Fee
It usually pays to confirm a car’s financial history before agreeing to a purchase, just in case the vehicle still has money owing on it, AKA a financial encumbrance. 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 sometimes cost you an extra fee.
You don’t have to miss out on the car you want if you can’t get the cash together for a car loan deposit. Some lenders offer high Loan to Value Ratio (LVR) loans where you pay a smaller deposit and borrow more. Other lenders offer 100% car loans, where you pay no deposit and instead borrow the full value of the car. Remember that if you choose a secured car loan with one of these options, you’ll likely pay a higher interest rate to make up for the increased risk to the lender.
Compare more secured car loans
Once you know exactly what you want from a secured car loan, you can start narrowing down your selection from the offers found on RateCity. By comparing a wide variety of secured car loan deals in one place, you can look at offers from different lenders side by side, and quickly work out which one will best match your finance requirements. You’ll be rolling out onto the road before you know it!