Secured Car Loans from 5.99%

What is a secured car loan?

A secured car loan is a car loan where the lender uses an asset (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 asset in order to recuperate its funds. Because of this, secured car loans often have lower interest rates, as the borrower is deemed to be less of a risk to the lender. 

You do have the option to use another asset as collateral if you wish such as term deposits, property, or high-cost items (e.g. jewellery) - it doesn't always have to be your car.

What happens if you default on your repayments?

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 drop considerably. 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.

How to compare secured car loan lenders and rates

If you're ready to apply for an unsecured car loan to buy your new set of wheels, here are a few things you should consider when looking at different lenders.

Interest rates and comparison rate

You'll need to decide whether you're opting for a fixed interest rate or a variable interest rate. With a fixed rate, your interest rate will stay the same for the duration of your car loan term, whereas a variable rate can fluctuate at any time so your repayments could go up or down.

The interest rate will determine what your repayments will be so it can be beneficial to take some time to compare the rates different lenders are offering for each loan type.

In addition to interest rates, comparison rates should also be looked at closely. The comparison rate reflects the loan interest rate plus fees and charges. Essentially, it gives you a better idea of the overall cost of the loan.

Loan term

Typically, the longer the loan term, the smaller the monthly repayments. However, 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.

If you cannot afford higher monthly repayments, you may need to consider a longer term agreement.

Ultimately, choosing the right loan term for you all comes down to your personal circumstances.

Features

Some lenders offer handy features to help 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'll have the capacity to put some more money towards your loan, then make sure the lender you choose has this option available (without penalties incurred).

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

Fees

Depending on the lender, you may be charged car loan fees throughout the loan term. Some of the fees you could encounter include: establishment fees, annual fees, redraw fees, and early repayment fees.

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 help you keep your repayments manageable. This is because the lender can repossess the asset in the case you default on your loan.
• Easier to be approved: as the lender has reassurance i.e. the asset, the application and approval process can generally be a quick and easy process.

Cons

• Age of car: some lenders only offer secured car loans for brand new cars, or used cars under a certain age (typically 5 years old).
• Risk your vehicle: if you cannot make the loan repayments on time, you will lose your car.
• Limited loan amount: you'll generally only be able to use the loan amount to purchase a vehicle e.g. you can't use the loan to pay for insurance, registration, or upgrades.

What's the difference between an unsecured and secured car loan?

There are quite a few differences between an unsecured and secured car loan. However, the most notable is using an asset as security.

With an unsecured car loan, you don't need to offer the car or any other asset as security on your loan. Without this security, you'll often find that your options are more limited and your lender will charge higher interest rates and fees than a secured loan. Unlike some secured car loans, you can purchase a used car and often borrow more than the car's value to pay for things like registration with an unsecured loan.

One 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.