Q&A with OnlineLoans: Secured or Unsecured Car Loans?

You asked, we answered.

Secured or Unsecured Car Loans?

In short: One uses a car as collateral, the other doesn’t.

But there are some things to consider

Did you know that the average new car in Australia costs around $40,000?

According to data from the Australian Auto Industry, in 2021, 1,049,831 new vehicles were sold in Australia, up from 916,968 in 2020.

So does this mean that during the turbulent year of 2020, 916,968 people had roughly $40,000 on hand?

Definitely not. Around 90% of all new cars in Australia are purchased under finance arrangements.

These finance arrangements commonly fall under two categories: Secured and unsecured.

What’s the difference?

Secured car loans

This means that a loan is taken out to purchase the vehicle and the vehicle is ‘secured’ to the loan. It acts as collateral and can be repossessed by the lender if the borrower can’t or won’t repay the loan as per the contract.

The vehicle can then be sold in order for the lender to recuperate some of the losses incurred from lending money which wasn’t paid back.

• Insurance is important. All vehicles bought with secured car loans must be comprehensively insured. This ensures costs are covered even if the vehicle is written off or damaged.

Naturally, new cars with high resale values are typically easier to purchase with secured car loans as they carry less risk.

Unsecured car loans

This means the loan is not secured to the vehicle. If the borrower doesn’t repay the loan, the lender can’t repossess the vehicle. In essence, these are personal loans for buying cars.

Unsecured car loans are riskier for lenders and typically attract higher interest rates.

Which one is best?

Most borrowers select the secured option, but it’s important to know all the information in order to select know what’s best for you.

Secured car loans

Secured car loans are the most common type of car finance. They are generally easier to get due to being less risky.

Advantages of secured car loans

• Often suit first-time borrowers or borrowers with bad credit history
• Can attract lower interest rates and fees as competition is high between lenders
• Can have longer loan terms which mean lower scheduled repayments
• Typically easier to get approved
• Borrowers are pre-approved for a certain amount for particular makes and models

On the other hand, borrowers won’t “see” the funds as they’re transferred from the lender to the seller of the vehicle. Typically, other expenses like stamp duty won’t be covered by secured car loans so there can be some out-of-pocket expenses.

Unsecured car loans

These loans can be advantageous to some borrowers.

Advantages of unsecured car loans

• Funds are sent to the borrower’s bank account which allows room for vehicle modifications or other cost
• Can allow borrowers to choose from more makes, models and vehicle ages

• If repayments aren’t made, the vehicle can’t be repossessed

Commonly, unsecured car loans are not for brand new vehicles.

As they are riskier, unsecured car loans often attract higher interest rates and can be more difficult to get approved.

In general

Secured car loans offer excellent opportunities for most borrowers. The low rates and relatively easier approval processes make these loans a popular option.

What do I need to get approved?

As with all forms of finance, you’ll usually need the following:

• Photo ID (which doesn’t have to be a driver’s licence)
• Proof of income/bank statements
• Proof of residency

If you’ve recently changed your address or started a new job, you may need to provide additional documents.

How do I prepare for a car loan?

Getting approved for a car loan means a new car, great news in anyone’s books. In the months leading up to applying, there are a few things you can do to make sure you get the best deal possible:

• Be careful with your spending, especially cash purchases as lenders like to see clean bank statements.
• Polish your credit score by making sure everything is accurate and any outstanding debts listed are paid.
• Check all things to consider before getting a car loan like specific vehicles and possible early repayment fees.

Other Q&A with OnlineLoans that may help

• Can Sole Traders Get Car Loans?
• Am I eligible for a car loan? 
• Do I Need a Driver’s Licence to Get a Car Loan?

The next step

Ready to get behind the wheel of your new car? Start the ball rolling by getting a quick quote for a clear idea of the numbers.

OnlineLoans is here to help you navigate the fine print and select the best option for your lifestyle.

Stay tuned for more Q&A With OnlineLoans as we clear up car loan confusion.