A secured car loan is a type of vehicle finance in which your purchased car is used as collateral, or in finance terms as a “security”, against the loan. This reduces the risk on the lender’s part and in turn you are offered lower interest rates compared with unsecured loans. Beware: if a borrower defaults (fails to pay back) a loan, the lender may repossess your vehicle to recoup their costs.
The advantages of secured car loans
Secured car loans have many advantages over unsecured loans such as personal loans. The first advantage is a more competitive interest rate. Secured car loans will usually (though not in all circumstances) have lower interest and/or comparison rates than similar unsecured loans. This is because the lender is taking on less risk by using your purchased vehicle as security.
You may be able to choose between fixed and variable rate loans. Variable rate loans are loans where the interest rate can go up or down depending on the market. Fixed rate loans are set at a certain percentage throughout the lifetime of the loan. Variable loans are more flexible in terms of making extra repayments, as you are generally not charged fees for paying out the loan early. Fixed rates are easier to budget for, as repayments are the same every week, fortnight, or month.
Some lenders may allow you to buy certified used or used vehicles with a secured car loan. In some instances, cars up to 12 years old can be financed using secured car loans.
Buyer beware: do your calculations first
As with any credit product or financial decision, you need to determine if you can afford the repayments and other expenses associated with buying a car on finance. This includes registration, fuel, comprehensive car insurance (which many lenders will insist upon if your car is the security), and maintenance.
Unlike unsecured personal loans, your lender will only give you enough money to cover the cost of purchase; other expenses will need to come out of your pocket.
If a borrower defaults on their loan, the bank or lender is legally authorised – in most circumstances - to repossess the vehicle in order to cover their losses.
Compare car loans with Savvy and make an informed decision
|Lender||Product Name||Advertised Rate||Comparison Rate||Monthly Repayment|
|Savvy||New Car Loan||2.85%|
|Bank of Australia||Used Car Loan||6.45%|
|ANZ||Online Secured Car Loan||7.85%|
|CUA||Fixed Rate Car Loan||7.99%|
|BankSA||Secured Fixed Personal Loan||8.49%|
|St George||Secured Fixed Personal Loan||8.49%|
|CBA||Secured Car Loan||8.49%|
|NAB||Variable Rate Personal Loan||14.19%|