Are Secured Car Loans Easier To Get?
Did you know? Around 90% of all new car purchases in Australia are purchased through finance. That means 9 out of every 10 new cars on the road are bought with loans. The vast majority of these are secured car loans.
A secured car loan means that the loan is “secured” against the vehicle - if the borrower doesn’t, the finance company can, as a last resort, repossess the car to sell and recuperate their funds.
This means that secured car loans carry less risk for lenders (eg. banks).
Are secured car loans easier to get? Yes, because they carry less risk.
But there's a lot more to it.
The low down on secured car loans
Although there are over 20 million vehicles on the roads in Australia, few people actually have the cash available to purchase a car outright.
And even fewer want to use their own money.
A car loan is often used as a type of personal loan, which enables the buyer to pay the vehicle off in monthly instalments rather than all at once.
Having a bit of background knowledge about the different types of car loans and how they each work can really help you understand the market and figure out which option is best for you.
The difference between secured car loans and unsecured car loans
One of the most important differences between car loan options is whether they are secured or unsecured. Generally, secured car loans are easier to get and much more common. Here’s a little explanation of each:
Secured car loans
With a secured car loan, the car will be the security for the loan.
This means that if you do not repay your loan, your lender will be able to sell the car (the secured asset) to recover the proceeds against the amount that you have borrowed.
If the sale of the car doesn't cover the amount still owed on the car, you will owe the remainder (the shortfall).
Unsecured car loans
An unsecured car loan is a loan that does not require the borrower to provide a security item to the lender.
This is essentially a personal loan used to buy a car.
Unsecured car loans aren’t very common because they are typically harder to get and attract higher interest rates.
However, here are some reasons why an unsecured car loan might work
- You want to buy an old (classic) car
- You’re looking at importing a vehicle
- You want to buy a restoration project
- You would like to heavily modify the vehicle
So, are secured car loans easier to get?
The simple answer is yes.
Although the type of loan you will get approval for depends on a variety of factors, including your credit history. Generally, secured car loans are easier to get than unsecured car loans.
Have are some advantages of secured car loans:
- Generally available for larger amounts than unsecured loans
- People with a poor credit history can still be approved for a secured car loan
- Repayments are generally fixed which allows you to budget accordingly
- Loan terms are often longer
It is important to remember that although secured car loans are easier to get, you’ll need to make sure that you always keep up with your repayments as you could risk losing your car if not.
What about UNsecured car loans?
For some people, unsecured car loans could provide the answer. They generally offer slightly more flexibility in terms of repayment options. However, the amount of people who can get an unsecured car loan is relatively limited.
Those with a poor credit score are often unable to get unsecured car loans as the lender will not risk losing the loan to someone who is unable to offer any security to them.
Due to an unsecured car loan proving far more risky for the lender, this type of loan will generally have much higher rates of interest.
For most people, secured car loans are the best option.
What do you need to get a secured car loan?
Each lender will vary slightly in their requirements for providing a secured car loan, however, here are some of the things you may be expected to provide:
- Proof of income and employment, eg. payslips
- Proof of residency, eg. utility bills
- Details of the car you’re planning to buy
If the lender requests further collateral (in addition to the car itself), you must be able to show proof of ownership. But this generally won’t be the case. If you’re unsure of whether what you are being asked to provide is appropriate, always seek expert advice.
How do you apply for a secured car loan?
The team at Positive Lending Solutions is here to help. We have years of experience putting Aussie drivers in cars they need and that match their lifestyles.
Speak to us to discuss your needs and get car loan advice to find the very best options available to you.
EXTRA: Prepare for your secured car loan
Getting your secured car loan means getting your car. However, it’s always best to be prepared to ensure that you make your secured car loan work.
Check out these quick tips:
- Make sure you’re aware of the interest rate on your secured car loan
- An interest rate does not include fees and charges. On the other hand, a comparison rate DOES include fees and charges, that’s why a comparison rate is typically higher
- Always ensure your repayments are budgeted into your monthly spending to avoid missing payments resulting in potential fees
- Be aware of any fees relating to issues such as early repayment
- Always use a broker to ensure you have access to lenders other than your bank (there are dozens of lenders in Australia)
- Know what determines your interest rate