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How Does a Secured Car Loan Work

Looking at buying a new car, but need finance? Here's your go-to guide on how secured car loans work.

Posted on: October 26, 2016

Looking at buying a new car, but need finance? Here's your go-to guide on how secured car loans work.

Unlike personal or payday loans, a secured car loan provides collateral if you are unable to make your vehicle repayments, which in turn creates a safer loan than what the alternatives are for both the borrower and lender. A secured car loan is for buying a new or used car with the principle borrowed being either the full or partial purchase price depending on whether you’ve paid a deposit.

As of January 31, 2016 there were 18.4 million registered motor vehicles in Australia*. At Finance One, secured vehicle loans are not restricted to passenger vehicles, but also includes motorbikes, caravans, campervans, and light commercial vehicles up to 10 tonnes among others. There are obvious restrictions to purchases, but as a second chance lender we endeavour to provide a vehicle as a critical purchase to maintain a work-life balance.

What is a secured car loan?

Secured loans are often available for purchases of assets with a reasonably high value such as cars, equipment or houses. The purchased asset then becomes security for the loan and would be used as collateral if the borrower is unable to pay for the asset. If such circumstances exist, the lender would be able to sell the secured asset to recover and apply proceeds against the full amount borrowed. If the asset sale does not amount to the balance owing on the loan, the borrower will have to pay the remainder to the lender.

So why go secured?

Unlike unsecured loans, a secured vehicle loan will offer much lower interest rates on the asset making it a cheaper purchase. This is a result of borrowers becoming responsible for budgeting and making repayments, and if this should not go to plan, the car may simply be repossessed by the finance company.

As the most common type of car loan, a secured one will also usually be on fixed interest, which means the repayment amounts will stay the same.

If you were a part of the 2.1 per cent increase in the Australian vehicle fleet between 2015 and 2016*, it is likely that you explored finance options to purchase this asset. By opting for a financier that offers secured vehicle loans, it is guaranteed that you will be held accountable for your repayments which will ultimately teach you valuable budgeting lessons that you will cherish for the rest of your life.

*statistics provided by the Australian Bureau of Statistics 9309.0 – Motor Vehicle Census, Australia, 31 Jan 2016.

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