What’s the difference between a secured vs unsecured car loan?

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Credit Union SA

Member Experience Team

If you’ve been shopping around for a new set of wheels,

Then you’ve probably come across the terms ‘secured’ and ‘unsecured’ car loans.

Let’s take a look at the differences between the two and how they can affect your loan repayments.

What is a secured car loan?

A secured car loan is one where your car is used as security against the loan. This means if you were ever unable to make your loan repayments, the lender could sell your car to recover the money they loaned you.

At this stage you might be wondering ‘what’s in it for me?’ – well security makes a loan less risky for the lender, which means you might be able to get a lower interest rate. Plus, the newer the car, the better the chance you’ll be able to get a lower rate. Some lenders might even be willing to give you more than the value of the car (if you meet the lending criteria, of course) to cater for things like registration, accessories etc.

What is an unsecured car loan?

An unsecured car loan means your car isn’t taken as security which means there’s much more risk involved for the lender. So, if you were ever unable to make your loan repayments, it’s a lot harder for lenders to get their money back.

This means lenders who offer unsecured car loans will usually charge a higher interest rate and might have stricter lending criteria.

But you should be able to purchase whatever type of car you like and use the loan amount however you choose. So, for example, you could buy a used car and borrow more than the car’s value to pay for things like insurance or a new set of tyres.

What is the difference between secured and unsecured loans interest rates?

We’ve compared our most popular ‘secured’ car loan and ‘unsecured’ car loan interest rates using our personal loan calculator to show you the difference.
Online-only Special Fixed Rate Car Loan (Secured)*Variable Rate Personal Loan (Unsecured)
Loan amount$30,000$30,000
Loan lifetime5 years5 years
Interest rate4.25% pa13.60% pa
Comparison rate4.73% pa13.97% pa
Monthly repayments$556$692
Total loan payable$33,354$41,511
So as the table shows, our Online-only Special Fixed Rate Car Loan (Secured) will cost you around $8,157 less in interest than our Variable Rate Personal Loan (Unsecured). There is a $60 fee to take your car as security on the low rate loan, but you end up being far better off in the long run!

So, which one is better?

Just like any financial product, it all depends on your personal circumstances and needs. There are many questions you’ll need to ask yourself before choosing a car loan, including:

  • How much am I able to pay each month?
  • How long do I want a loan for?

However, in most cases, you can save money on interest by going with a secured car loan.

*The online-only special fixed rate personal loan is available when secured by a new or used vehicle less than 5 years of age. To qualify for the online-only product, applications must be completed using the online form.

Conditions, fees and lending criteria apply. Interest rates are subject to change without notice. Comparison rates are based on a secured loan of $30,000 with monthly repayments over a term of 5 years. WARNING: These comparison rates are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

This is general advice only and you should consider the terms and conditions before determining whether any of our products are suitable to your situation.

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