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Loans secured by car
What are loans secured by car?
Secured loans are where lenders advance you money with the loan being protected by an asset you own or some other type of collateral. Loans secured by car are one way of securing a loan and the lender takes a lien out on the vehicle. A bank or finance company will hold the ownership of the car until you have paid off the loan in full. This includes any applicable fees and interest, and when everything has been paid up the car reverts to your ownership. If you intend to use a loan to buy a new or second-hand car, where the loan is secured on it, you should check with financial institutions in terms of their requirements relating to the age of the car and whether you could split a loan to buy, for example, some furniture as well.
Why do people use loans secured by car?
Loans secured by car are useful when you want to borrow a significant amount of money. When a lender has an asset such as car as security you are likely to be able to borrow a larger amount than if your loan was unsecured, so if your car has a good value your borrowing options may be enhanced. That security, where in the event of you defaulting on loan repayments the lender has the right to sell the vehicle, can also offer benefits such as a lower interest rate on what you have borrowed and the possibility of having a longer time period to make repayments. It will depend on how much your loan is and it's worth comparing a range of potential lenders to look for the deal that suits you the best.
What are the main features of loans secured by car?
When you take out a personal loan secured by car you are giving an assurance to the lender in the form of a tangible asset. It is effectively a guarantee that they will get their money back one way or another. If you repay everything in full the ownership of the car reverts to you from being owned by the financial institution. Lenders believe you are more likely to pay off a secured loan because if you don't you effectively wasted a lot of money because they may then dispose of the vehicle to get their money returned. Look for good interest rates and negotiate your levels of repayment and how many years they will last.
Loans secured by car can be set up with either variable or fixed interest rates, enabling you to decide what best matches your personal circumstances.
What are the pros and cons of loans secured by car?
With this type of loan you have the possibility of borrowing more by having the loan secured by car. You are more likely to get a lower interest rate and be able to have a longer time for repaying.
Failing to pay off the loan will leave you seriously out of pocket and without your car, so bear that in mind when going ahead with this type of product.
Kate was one of RateCity's Personal Finance Commentators. She has been a journalist for more than a decade, most of which has been spent writing about money. Most recently, she was the Australian Financial Review's personal finance correspondent. She is passionate about personal finance and women's independence.
Most lenders will need to you provide the following information in your application for a fast loan:
- Proof of identity
- Proof of residence
- Proof of income
- Details of any assets you own (e.g. car, home etc.)
- Details of any liabilities you owe (other personal loans, credit cards, mortgages etc.)
- How much you want to borrow
- How long you want to pay it back
- Purpose of your loan
A bad credit personal loan is ‘secured’ when the borrower offers up an asset (such as a car or jewellery) as collateral or security. The lender can then seize the asset if the borrower fails to repay the loan.
Personal loans may require a borrower to provide proof of identity, proof of residence, details of any other outstanding loans (including credit cards), details of assets they own (e.g. savings, car, property), and proof of income.
While borrowers in full-time or part-time employment can often provide payslips and similar documents to prove their income, self-employed borrowers may need to provide other information, such as bank statements or tax returns, to demonstrate that their income can cover a loan’s repayments.
Much like applying for other personal loans, applying for personal loans for single parents will likely require the following:
- Proof of identity
- Proof of residence
- Proof of income
- Details of assets (e.g. car, home)
- Details of liabilities (e.g. credit cards, other loans)
- Loan amount
- Loan term
Many borrowers use quick loans to cover short-term costs, such as paying for car repairs, medical bills, or replacing broken appliances or electronics.
Before applying for a quick loan, consider whether other options are available, such as working out a payment plan or applying for an advance or extension.
While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, with higher interest rates.
Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will guarantee the loan, taking on the financial responsibility if the borrower defaults.
Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans – they also get loaned less money. Each lender has its own policies, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.
If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility.
Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.
Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.
It may be much more difficult for a self-employed borrower to successfully apply for a personal loan if they also have bad credit. Many lenders already consider self-employed borrowers to be riskier than those in full time employment, so several self-employed personal loans require borrowers to have excellent credit.
If you’re a self-employed borrower with a bad credit history, there may still be personal loan options available to you, such as securing your personal loan against a vehicle of equity in a property, though your interest rates may be higher than those of other borrowers. Consider contacting a lender before applying to discuss your options.