Secured car loan rates
Below you can see a comparison of secured car loans, across both fixed and variable interest payment terms, for a $30,000 loan over five years.
With the Reserve Bank’s cash rate at historic lows, some lenders are offering super low interest rates on car loans. However, you might find unsecured loans still carry higher interest rates. This is for the risks the lender assumes when taking the borrower on as a customer. By securing the car against the loan, the lender is able to offer a lower rate.
What is a secured car loan?
A secured car loan uses the car as security against the loan. This means that if you fail to pay the loan, the lender can have the right to repossess your car. Because of this, secured car loans often have the benefit of having a lower interest rate, and a lower comparison rate to boot.
What is an unsecured car loan?
This is essentially the opposite of an unsecured car loan, which are really just personal loans under a different name. Unlike a secured loan, a lender cannot take your car away if you fail to pay an unsecured loan. Rather, they will attempt to get repaid through other means. As a result, an unsecured loan can have a higher interest rate than a secured one.
Is a car loan always a secured loan?
As you’ve probably gathered, a car loan isn’t necessarily always a secured loan. When browsing around, you might have discovered a personal loan dressed up as a car loan. These tend to be unsecured loans, just a personal loan intended to be used to purchase a car.
The biggest, and arguably the most obvious way, to tell unsecured and secured car loans apart is the interest rate. Say, Car Loan 1 has an interest rate of 5% p.a, and Car Loan 2 has an interest rate of 11% p.a. You could probably assume that Car Loan 1 is a secured car loan because of its lower interest rate, but this might not always be the case.
It pays to check the finer details of the car loan product you’re looking at.
Using your car as security for a loan: what to know
Using your car as security for a loan can be a good way to get the loan you want with a lower interest rate compared to other loan types. However, one of the biggest things to be wary of when you have a loan against your car is that the vehicle can be taken away if you fail to repay the loan.
So, how long or how much would it take for a lender to repossess your car? Well that varies by state. For example, in Queensland, a repossession can’t take place without a court order if less than 25% of the initial debt or $10,000 (whichever is less) remains owing. However, if it’s over that limit, the lender can repossess your vehicle within 30 days after delivery of the default notice.
However, having an unsecured loan doesn’t let you escape the consequences of defaulting on it. You could still face legal action and be chased by a collections agency, while your credit history will have a black mark against it and your credit rating will be smashed. Overall, it pays to check with your own state’s laws to see what takes place, in regards to repossession, should you default on your car loan.