car loans

Are car loans secured or unsecured?


When you’re borrowing money for a car loan, you can choose either a secured or unsecured car loan, so long as you meet eligibility requirements set out by your chosen lender. Understanding the differences between these two basic loan types can help you determine how much you’ll be paying and the interest rate you’ll be charged.

What is a secured car loan?

A secured car loan is a loan that is borrowed against an asset of equal or greater value. 

In this case, if the asset that is being purchased is a car, then the car will become security for the loan. So, if the borrower for any reason fails to repay the loan, the lender is able to sell the asset in order to recover the money borrowed to purchase it. This provides the lender with a security blanket, as it ensures them that they won’t lose money if the borrower fails to make their agreed-upon repayments.  

This security (also known as collateral) also means that the lender can offer a lower interest rate for the loan, allowing the purchaser to borrow a greater amount or to even extend the repayment period longer.

These types of loans are usually only available for newer vehicle models since they are more valuable as an asset.

What is an unsecured car loan?

An unsecured car loan means that there is no asset put up as collateral. That means, if the borrower fails to make repayments or defaults on their loan, the lender must initiate a lawsuit to get back what is owed to them.

Because of this, unsecured loans are risky, and therefore are likely to incur a higher interest rate. Since lenders are putting themselves more at risk by not requiring security against the loan, they will likely impose stricter eligibility requirements including a good credit score history.

An unsecured loan is primarily open to borrowers who are purchasing an older vehicle model or one that is worth less than the value criteria marked out by their chosen lender.

If you are looking to borrow a smaller amount for a new or old vehicle and know that you are able to make the repayments, then you may wish to choose an unsecured loan.

The good news is that Plenti offers flexible loan terms on unsecured loans. That way, you can choose between fixed repayments or the flexibility of variable repayments, depending on your current circumstances.

Should I choose a secured or unsecured car loan?

If you’re looking at buying a car that’s less than 7 years old and the market value of the car is at least $10,000 then you may be suited to a secured car loan. A secured car loan generally comes with a fixed interest rate, meaning you have the certainty of knowing how much your repayments will be over the life of the loan. 

If you choose a secured car loan, you are agreeing to provide the lender with rights over the asset – in this case, your vehicle. The advantage of this is that you’ll earn a lower interest rate than other loan types and have more borrowing power. At Plenti, secured car loans are available from $10,000 to $100,000 for a new, demo or used car under 7 years old with fixed interest rates. 

Given that the loan is secured by the value of your vehicle, your lender will ask you to confirm the value of the asset and ensure that its value is protected. You will be asked to do this by:

  • Informing your lender of your new vehicles chassis number, vehicle identification number (VIN), registration number, model & make, year, and colour
  • Providing the lender with a copy of your car registration papers
  • Getting a vehicle inspection (if through a private sale)
  • Purchasing a comprehensive car insurance policy and having the lender added as an interested party

On the other hand, if the car you’re wishing to an older vehicle or a vehicle of smaller market value, then you might want to choose an unsecured loan.

An unsecured car loan operates like a traditional personal loan. With an unsecured loan, you have the freedom of either a fixed or variable rate. At Plenti, unsecured car loans are available from $2,001 to $45,000 for a car of any age.

When it comes to choosing which loan type is right for you, ask yourself:

  • What’s the interest rate like? Before choosing your loan type, you should compare car loan rates to find the lowest possible rate available.
  • Do you prefer a fixed or variable rate? Can you realistically make repayments on time?
  • What is the length of the loan?

Buying a car is a big financial commitment, and it’s important to not only factor in the price of the vehicle being purchased but also the fees that come with a car loan. 

Find out exactly what loan types you qualify for and how much repayments you will need to make by completing a quick 1-minute RateEstimate online. This makes it easier for you to decide which loan type is best for you.

Sebastian Paulin

Written By Sebastian Paulin

Sebastian has worked with Australia’s leading banks and fintechs for over 12 years building better consumer experiences.

FinTech & Consumer Finance Author