What Is a Secured Car Loan and How Does it Work In Australia?

If you dream of buying a car, but you want to buy without spending all of your savings, you may want to consider a car loan and securing it could mean getting a better rate.

This is a type of financing that includes your car as collateral against the loan, and it comes with several useful benefits that we’ll discuss below.

What Are Secured Car Loans?

A secured car loan is a type of loan that is used only for the purpose of buying a new or used car. Where the value of the purchased vehicle is used as collateral to guarantee the loan.

If you default on your loan then the bank or lender will be able to repossess and sell your car to recover the money lent to you.

Who are secured car loans right for?

Secured loans usually allow you to borrow a larger amount, which means that if you’re looking for an expensive car, this may be the option for you.

Since the lender has less risk with a secured loan, their interest rates are lower. Since you’re using a deposit to secure the loan, lenders may be a little more lenient with borrowers who have low credit scores or find it difficult to get approved.

What’s more, interest rates tend to be fixed, which means if you want to stick to a budget and know what payments are coming in, they may be a good option for you.

What is an unsecured car loan?

Unlike a secured loan, unsecured loans don’t use any assets as collateral, which means that if you can’t meet your repayments, the lender can’t seize your car to recover the funds. Instead, they may take you to court to get their money back.

Since there is no collateral involved, unsecured loans generally carry more risk than secured loans. Unsecured loans often come with higher interest rates, lower borrowing limits and shorter repayment terms than secured loans.

Who are unsecured car loans right for?

If you’re after a smaller loan or a shorter term, an unsecured loan may be right for you. And, you don’t have to worry about your car being repossessed if you miss a payment.

Before applying you need to remember that you must have a good credit history to qualify.

Secured vs Unsecured Car Loans

Since secured vehicle loans are less risky to lenders, they offer much better terms than unsecured loans.

Secured car loanUnsecured car loan
Lower interest rateHigher interest rates
Higher borrowing limitsNeed a better credit history
Longer repayment termsBigger risk for lender
Approval within 24 hoursExtended wait times
Early payout availableEarly payout available
Weekly, fortnightly and monthly repayment optionsWeekly, fortnightly and monthly repayment options
3, 4 or 5 year loan term available1-7 year loan terms

How to compare secured car loans

What to consider:

  • Interest rate
  • Ongoing fees
  • Application fees
  • Repayment frequency (weekly, fortnightly, monthly)
  • Total loan amount

What’s the process for getting secured car loans?

While the process of getting a secured loan varies from lender to lender, applicants still follow more or less similar steps:

Getting your documents in order: You must have important documents like identity proof, income proof and residence proof to purchase a car through the secured loan process.

Check your credit score: Knowing your credit score in advance will help you prepare for how much you can borrow and roughly know the interest rates and fees you will have to pay with your loan.

Choose your vehicle: Before you apply, you need to know the make or model of the car you want to buy. This will help the lenders to assess whether you can approve the car loan application.

Getting a loan: Getting approved for a loan is an exciting step. You will hear your lender tell you the good news. After that, the funds will be transferred to your designated bank account.


1. How do I know if my car loan is secured?

A secured car loan as a form of financing is one where the borrower has to put up collateral or collateral with the financial institution while taking out the car loan.

2. Can you use someone else’s car as collateral for a loan?

Yes, you can use someone else’s car as collateral for the loan. But if you default on the loan, you put the car at risk.

3. Where can you get a secured car loan?

Most Australian banks and lending institutions offer different types of loans.

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