A Guide to Secured Car Loans

A secured loan is when the borrower provides an asset to a lender which acts as security against the loan being paid back.
iSelect Editorial Team
3 min read
Learn more about Secured Car Loans with this helpful guide. Picture: iStock

A secured loan is when the borrower provides an asset to a lender which acts as security against the loan being paid back. So, if the loan is not paid back, the lender can seize that asset to recoup their losses. A secured car loan is simply a secured loan which is used expressly for buying a car.

How does a secured car loan work?

The security on a secured car loan is generally the car itself. Because the car is being used to secure the loan, it is technically the lender’s property until you fully pay off your loan.

So, if you default on your loan, the lender can repossess your car and resell it to pay off the outstanding balance.

In this way, a secured car loan is less risky for the lender and, as a result, may have a lower interest rate than an unsecured car loan.

What are the typical features of a secured car loan?

Like any loans, secured car loans can come with a range of features, these include:

  • Fixed or Variable rate: If you choose a fixed rate loan, your interest rate and payments generally won’t change over the life of the loan, which means you’ll be protected from any market interest rate increases, but conversely, you won’t benefit if interest rates drop. A variable rate means that your repayments could change over the life of the loan as the market rate fluctuates. This could have the effect of reducing your payments, but could also increase them in the case of a rise in the market rate.
Secured Car Loans
  • Extra repayments: Making extra repayments into any loan could save you money and help pay off your loan sooner. However, not all loans allow you to do this, so it’s always worth checking if that’s something you’re likely to be able to afford to do.

  • Redraw facility: If you make those extra repayments, it’s handy to have a redraw facility, then, if needed, you can access those funds as required. Some lenders may charge a fee for this, others may not offer the option at all, so, again, check with individual lenders if this is a feature you may use.

  • Loan term: This is the length of time over which you will have to repay the loan. With a secured loan, this term varies from one up to around 15 years. The loan term you select can affect the interest rate you pay, and remember, the longer any loan, then the more interest you’ll end up paying over the long term.

  • Repayment frequency: This is when and how often you’ll be making the payments. You can set this up when you take out the loan, and they’re generally fortnightly or monthly, but other options may be available with individual lenders.

Find a great Car Loan deal online today! Picture: iStock

What can I use as security for my car loan?

The most commonly used security for a car loan is the car itself. Some lenders may be willing to use other assets, such as property or other collateral. This varies between providers and if required, will have to be approved by the individual lender.

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Can a secured car loan come with a lower interest rate?

Because a secured car loan is secured by the asset of your car, the lender is taking on a lower risk than with an unsecured loan. Because of this reduced risk, secured car loans typically attract a lower interest rate than unsecured car loans. Again, this varies between lenders, so it’s always worth comparing.

What are the pros and cons of a secured loan?

The pros and cons of a secured loan may vary slightly between lenders, but in general:


  • Generally, a secured loan has a lower interest rate than an unsecured car loan · Some lenders let you borrow larger amounts if the loan is secured.

  • A secured loan could be easier to get even if your credit score is not perfect.

  • Longer terms - Some secured loans can let you spread the payments out over a longer term, making the regular payments less. But be aware that you could end up paying more interest in the long term.


  • If you default you could lose your car, or whichever asset was provided as security.

  • If your car loses value and becomes worth less than the outstanding loan, you could lose your car and still be liable for the outstanding amount.

  • Some lenders only offer secured car loans on new cars, however there are still plenty of options if you’re buying a used car.

How do I find out if I’m eligible for a secured loan?

Your eligibility for a secured car loan will be assessed, so you’ll need to provide information including:

  • Identification and proof of address: Generally lenders will require at least two forms of ID.

  • Proof of income: Typically a lender will want to see recent payslips to prove that you have a regular income which will allow you to pay back the loan.

  • Bank statements, Credit card details and other financials: The lender needs to know that you are in a stable financial situation and not already in prohibitive debt.

A Secured Car Loan can be a great option when looking to finance a car. Picture: iStock

How do I find a secured loan that suits me?

With iSelect you can compare from the range of secured car loan products and providers, and select the one which suits you.

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