What Is a Secured Car Loan?

If you’re looking into buying a new car, there’s a high chance you’re also looking at taking out a loan to afford it. There’s a lot of terminology in the field of car loans, especially for those that are new to the business. You may have found yourself asking ‘what is a secured car loan?’

As a car loan broker in Australia, Time Home Loans can help you make sense of the complexities of car finance, whether you’re buying new or second-hand. Understanding the distinctions between the different kinds of car loans (as well as how interest rates work) can help you choose the right loan and make sure it’s affordable.

So what is a secured car loan? Here’s the Time Home Loans guide.

What is a secured car loan?

 A car loan is a kind of personal loan designed specifically for purchasing a vehicle, and it comes with fixed or variable interest rates. Car loans can be structured over various terms but usually last between one to seven years.

Your interest rate is the percentage of the loan amount that you pay back in addition to the money you owe. Lenders take your credit score into account and a higher credit score generally results in lower interest rates.

The type of car loan you choose also impacts interest rates. There are four main types of car loans: secured, unsecured, variable and fixed rate. With a fixed rate option, your interest rate remains consistent throughout your loan term and so do your repayments. With the variable kind, they can change based on market fluctuations.

What is a secured car loan and who does it suit? A secured car loan is when the lender has security over the asset – in this case, your car. If your circumstances change and you can’t repay the loan, the lender is able to sell the vehicle to recoup their funds.

 Benefits of a secured car loan

 What is a secured car loan’s benefits for you? While it may sound like a riskier proposition, the major advantages of putting your car up as collateral include:

Lower interest rates

Unsecured loans are more risky for lenders, who charge you at higher rates. With a secured car loan, interest rates are much lower – making it easier to make repayments even if your circumstances change.

More options

The majority of car loans that banks and lenders offer are secured car loans, giving you more choices.

You can borrow higher amounts

With a secured car loan you can borrow a higher amount, or extend the term of the loan further than you could with an unsecured car loan.

Easier approval

Because secured car loans pose fewer risks to lenders, they’re often more likely to approve them even if you have a low income or poor credit history.

On the downside, secured car loans can come with unforeseen fees and charges and a smaller choice of cars to choose from. You also run the risk of losing your new vehicle if you don’t pay on time.

 How to get started

 Getting a car loan is a daunting process, and it can be even more challenging if you’re young, inexperienced, self-employed, on a low income or have a poor credit history. Here are some tips to make dealing with this aspect of car finance easier.

Work out a budget

Your car loan repayments and interest rates won’t be the only expenses you have to deal with. There’s also registration, insurance, petrol etc. Work out a budget so you know how much you can afford to spend.

Gather all the required documents

Banks and lenders require identifying documents like a driver’s licence or passport plus proof of income and your assets and liabilities. You’ll also have to supply them with the details of your vehicle when you purchase the car.

Save for the down payment

Putting up the down payment shows the lender your financial responsibility, and the larger the down payment, the lower your repayments tend to be.

Talk to a car loan broker

You don’t want to do this alone, especially if it’s your first time. Time Home Loans are happy to get you ready to buy your next new or used car.