Best Secured Car Loans From 5.67%

What is a secured car loan?

A secured car loan is one where the lender uses an asset (in most cases, the car you're buying) as security against the loan. This means that if you fail to meet your repayments, the lender has the right to sell or repossess the car in a bid to recuperate its funds.

Because of this back-up, secured car loans tend to come with lower interest rates, as lenders deem the loan to be less risky than if there was no security at all. A secured loan is the most common way to finance a car purchase in Australia because the loan will generally cost less compared to taking out an unsecured loan and lenders will generally allow you to borrow more.

As a borrower, you may also have the option of using another asset as security, such as term deposits, property, or other high-cost items (e.g. jewellery) - it doesn't always have to be your car.

How to compare secured car loan lenders and rates

Before you sign up to a car loan, it pays to compare what else is on the market. Here are the main considerations:

Interest rate and comparison rate

It goes without saying the interest rate is a primary consideration for any loan, but it's also important to check the comparison rate which reflects the interest rate as well as fees and charges. The comparison rate will give you a better idea of the overall cost of the loan.

While you're comparing rates, you'll also need to decide whether to go for a fixed or variable interest rate. A fixed rate means your interest rate will stay the same for the duration of your loan term. This can be useful if you're sticking to a budget or wanting to be sure exactly what payments you'll be making for the life of the loan. A variable rate can fluctuate at any time, so your repayments could go up or down.

Loan term

Typically, the longer the loan term, the smaller the monthly repayments although this usually means you'll end up paying more in interest charges. If you want to save as much as you can on interest and also want to pay off the car loan as soon as possible, a shorter loan term may be a better option.

However, if the higher monthly repayments are a stretch, a longer-term loan with more, but lower, payments might suit you better. Ultimately, choosing the right loan term for you all comes down to your personal circumstances.

Features

Some lenders offer handy features to help you pay off your car loan sooner and, thus, pay less interest such as the ability to make fee-free extra repayments. If you think you may have the capacity to put some more money towards your loan, it's wise to choose a lender that offers this option (without penalties incurred).

Another feature you may want to consider is a redraw facility. This allows you to redraw any extra repayments from your car loan in case of an emergency. Keep in mind though that some lenders may charge associated fees for this.

What are the pros and cons of a secured car loan?

Pros

• Lower interest rates. Secured loans typically come with lower interest rates which can keep your repayments more manageable. This is because the lender has the ability to repossess the car (or other secured asset) in the case you default on your loan.

• Easier to be approved. Because the lender has the ability to recoup their debt in the event of a default by repossessing the car, the loan application and approval process can generally be a relatively quick and easy process.

• More lenders to choose from. Because secured car loans are seen as less risky, there are generally more lenders offering a wider variety of loans, features, and conditions.

Cons

• Age of car. Some lenders only offer secured car loans for brand new cars or used cars under a certain age (generally between 5-12 years old, but this will depend on the lender). This can restrict the type of car you're able to purchase.

• Car will depreciate faster than the loan balance. If you buy a new car with a secured car loan, bear in mind its value will go down markedly as soon as you own it. This potentially leaves you with a loan amount more than your car is worth.

• Risk of losing your vehicle. Simply put, if you can't meet your loan repayments for any reason, you stand to lose your car.

• Limited loan amount. You'll generally only be able to use the loan amount to purchase the car without any add-ons such as covering the cost of insurance, registration, or vehicle upgrades.

See also: Secured vs unsecured car loans

What happens if you default on your repayments?

If you default on a secured car loan, the lender has the legal right to seize and sell the vehicle to recover their losses, though strict Australian consumer credit laws govern when and how this repossession can occur.

So, what does it take for a lender to repossess your car? First up, a lender can't repossess your car, or other asset, if you owe less than $10,000 or 25% of the loan total (whichever is lower).

But if you owe more, the process can depend on what state or territory you live in. A lender must have sent a notice giving you 30 days to pay the overdue amount. If 30 days passes and you haven't paid - or made other arrangements to pay - the lender has the right to repossess your car.

From there, the rules surrounding repossession vary between jurisdictions. The key message is that if you have fallen behind on your loan payments, you need to act quickly to contact your lender and make alternative arrangements.

But if you think taking out an unsecured loan lets you sidestep the consequences of default, think again. You could still face legal action and be chased by a collections agency. Your credit history will have also have a black mark recorded against it, affecting your credit rating and making it more difficult for you to access credit products in the future.