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What Is a Secured Car Loan?

Oct 27, 2023 | Insights

Looking at buying a new car but need finance? Here’s your guide on how secured Car Loans work.

If you’ve been in the market for a new or used vehicle, you’ll probably have come across two different Personal Loan options: secured Car Loans and unsecured Car Loans. If you’ve been asking yourself, ‘how does a secured Car Loan work?’, we have good news: at Finance One, we’re here to tell you all you need to know about secured Car Loans, to help you zoom through your decision-making process, and get you behind the wheel, sooner!

Strap yourself in for our comprehensive guide to secured car loans below. 

What is a secured Car Loan?

When you take out a secured Car Loan, you’re effectively offering the lender your car as security in the event that you default and aren’t able to repay your loan (hence the term ‘secured’). Offering a car as security is often referred to as collateral. The benefits of offering a lender collateral may work in your favour if you have a poor credit history or experience trouble in accessing finance, as it is typically lower risk for a lender to offer a secured Car Loan versus an unsecured Car Loan.

While it’s not a nice feeling to think about having a lender repossess your car, hopefully, with diligent repayments and financial responsibility, that wouldn’t happen.

What are the main differences between unsecured Car Loans and secured Car Loans?

Generally speaking, one of the main differences between unsecured Car Loans and secured Car Loans is the interest rate. Particularly in a rising interest rate environment, many people are concerned with the interest rate that they’ll need to pay on a Car Loan, Personal Loan or Home Loan. Given that a secured Car Loans provides the lender with more security in the event of default, generally speaking, secured loans come with lower interest rates than unsecured loans.

Some of the other differences between an unsecured loan and a secured loan might include:

  • Loan terms, such as the ability to make additional repayments and how long you’re able to take the loan over.
  • Minimum and maximum loan amounts (some unsecured loans may come with a lower maximum loan amount).
  • The requirement to take out comprehensive insurance on the vehicle if it’s funded via a secured Car Loan.
  • Unsecured loans can generally be used for any purpose at the borrower’s discretion, whereas with a secured loan, you can generally only borrow against the asset being offered as collateral (in the case of Car Loans, this is the car that’s being purchased).

Variable vs fixed-rate loans

Interest costs are a large consideration for those looking to take out a Car Loan. Both secured and unsecured loans may be available with either a fixed interest rate or variable interest rates. Making the decision between a fixed or variable interest rate will depend largely on your financial situation and personal objectives.

Fixed-rate loans

Fixed-rate loans may provide budgeting certainty for borrowers, as the interest rate is ‘fixed’ at the beginning of the loan and, therefore, won’t change over the life of the loan. If you opt for a fixed-rate loan, this may also provide some protection against rising interest rates being passed onto you. However, by the same token, this also means that if there is a drop in interest rates, you may not be eligible to receive the drop in rates on your loan.

Variable-rate loans

Variable-rate loans, on the other hand, come with a variable rate of interest. Changes made to the cash rate by the Reserve Bank of Australia (RBA) won’t necessarily be automatically passed on, as it’s at the discretion of the lender. This may potentially provide borrowers with the opportunity to access lower interest rates if the rate is dropped, however, it also leaves borrowers subject to interest rate rises.

Can I use a secured loan for a used car?

Getting a new car doesn’t need to mean brand new off the showroom floor; a new car can be a used car that’s new for you! Some lenders may restrict their secured Car Loan product to brand-new cars only, but given the quality of second-hand vehicles these days, it may work in your favour to access a lender who offers secured lending on either a new or used car.

When should I use an unsecured loan?

An unsecured loan is generally better suited for borrowers who are looking to utilise some of their loan funds for purposes other than a car purchase. Given that an unsecured Car Loan is typically higher risk than a secured Car Loan, it’s a good idea to weigh up the ongoing costs with all your loan options to understand what is going to be best for you.

Beware of introductory rates: An unsecured Car Loan may be advertised with an attractive interest rate that expires a short while into the life of the loan. These are known as introductory rates. Different lenders may offer these rates to entice borrowers to take out an unsecured Car Loan through them, however, the interest rate often jumps up after a year or two, which drastically increases the monthly repayments.

What should I look for when comparing secured Car Loans?


When you begin to compare secured Car Loans, you may find it helpful to look at the comparison rate for different lenders. A comparison rate is a way of representing the true cost of a loan or mortgage by combining the interest rate with any associated ongoing fees and charges. Using comparison rates may help provide you with a more accurate comparison as it reflects the overall cost of the loan rather than just the interest rate.

There is a small risk with relying on a comparison rate, though; if you have a poor credit history, the risk is that you get your heart set on a product based on the comparison rate when you may not meet the lender’s eligibility criteria, based on your credit rating.

The best secured Car Loan for you is one that’s going to fit your unique circumstances and, ultimately, where you can comfortably afford the loan repayments!

Can I get a secured Car Loan with a bad credit rating?

The good news is that a good credit history isn’t totally necessary when applying for a secured Car Loan. Life has its ups and downs — bad credit lenders understand this, which is why Finance One offer lending solutions for Aussies who may have a tough time accessing finance elsewhere.

We offer secured loan solutions for vehicle purchases for Australians who:

  • are at least 18 years of age;
  • receive a consistent income source (including Centrelink or self-employed income);
  • want to borrow between $5,000 and $75,000*; and
  • have a poor credit history or have defaults on their credit file. 

To discuss your secured Car Loan options with an experienced and understanding team member, contact Finance One today!

*Loans between $50,000 – $75,000 must be asset backed.

**Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.

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