How Does a Secured Car Loan Work?
What is 'secured' car finance?
"Security" in the context of personal finance means that for the duration of your loan term, the lender is granted rights over a valuable asset.
When you buy a car, the lender will register their interest in the vehicle on the Personal Property Security Register (PPSR). This is a national online noticeboard that shows who has an interest in valuable personal property items. It aims to prevent the sale of a valuable asset by someone who doesn't have full ownership of the asset.
What are the benefits of a secured car loan?
The key advantage of the customer taking out secured car finance is that you can access a lower car loan interest rate, which means borrowing money to purchase your car will cost you less.
The reason the lender gives you a better rate is that they are taking less risk to lend you the money. If you can't pay back the loan, the lender has the option to sell the vehicle and recover the loan amount. For the duration of your loan term, the lender has a registered right to reclaim your car if you don't meet repayments.
At the end of the loan term, the lender will remove their registered interest over your car, and it will be 100 per cent yours to do as you wish.
If you are looking for other ways to save on your car loan, find out what determines your interest rate so you can get the best possible car loan.
Who is a secured car loan for?
A secured car loan is the most common type of car loan available. It's for anyone who wants to buy a car that's less than seven years old.
When you take out a secured car loan, you will usually have a fixed loan term and a fixed interest rate, so you know exactly what your car loan repayments will be for the duration of the loan term.
How do I protect my secured asset?
Taking out a secured loan rather than an unsecured loan gives you the advantage of more affordable finance. To ensure that you don't place your asset at risk, you'll want to make sure that you set in place a budget that allows for your secured car loan repayments.
When you make every car loan repayment on time, every time, at the end of the loan term the asset is yours 100 per cent.
However, things don't always go as you planned. If an unforeseen event does occur and you find that you are without a regular income, there's a couple of options you have so you won't lose your car.
1. Loan Protection Insurance
When you take out your car loan, you have the option to take out 'loan protection insurance'. This is a small fee added to your regular repayments.
Loan protection insurance means that if you are out of work, or can't make repayments for some reason, the insurance will pay out the remainder of your loan so you won't lose the vehicle.
2. Income Protection
If you have an injury or a sudden illness that means you aren't able to work, income protection covers you for a certain portion of your lost income, usually up to 75 per cent, but it can be up to your regular income depending on the exact cover that you have.
Most people have default income protection insurance held by their superannuation. You can take out a more comprehensive income protection insurance option by speaking to a financial planner. With the right income protection in place, you'll be able to make your payments on your car loan and any other assets you have secured, and you won't lose them.
3. Ask your lender for a repayment break
If there are extenuating circumstances that mean you can't meet your next car loan repayment, contact your lender straight away, ideally before the payment falls due, to arrange a compassionate repayment break.
Most lenders will give you enough time to put a plan in place so you won't lose your car.
How do I apply for a secured car loan?
You can apply for a secured car loan with your bank directly, or use a car finance broker to shop the options available. With peer to peer lenders and online banks coming into play, it's worthwhile taking advantage of a competitive market to get the best possible secured car finance.
Applying for a car loan is easy - you can get a quote for the car finance you need online and complete the application from your mobile, there's no complicated paperwork or long phone calls needed.
The Positive Process details the exact steps you'll take from getting an initial assessment to picking up the car.
If you'd like to find out what your secured car finance options are, it's as easy as getting a quick quote for the type of car you'd like to buy.
If you have any questions about getting a car loan, your lending manager will be able to answer them and help you to find a great car finance solution.