When shopping for car finance, you'll come across two main types of loans: secured and unsecured. Understanding the difference can save you thousands over the life of your loan.
Let's break down what each means and which might be right for you.
What Is a Secured Car Loan?
A secured car loan uses the vehicle you're buying as collateral (security) for the loan. If you stop making repayments, the lender can repossess the car to recover their money.
Because the lender has this safety net, secured loans typically come with:
- Lower interest rates — less risk for the lender means better rates for you
- Higher borrowing limits — lenders are more comfortable lending larger amounts
- Longer loan terms available — up to 7 years in many cases
The Catch
Until the loan is fully paid off, the lender has a legal interest in your car. You can't sell it without their permission (and paying out the loan). If you default, they can take the car.
What Is an Unsecured Car Loan?
An unsecured car loan (often called a personal loan) doesn't use the car as collateral. The lender approves you based on your creditworthiness alone — your income, credit history, and ability to repay.
Because there's no asset backing the loan:
- Higher interest rates — more risk for the lender means you pay more
- Lower borrowing limits — typically capped lower than secured loans
- Shorter terms — often maxing out at 5 years
The Upside
You own the car outright from day one. You can sell it whenever you want, and if something goes wrong financially, the lender can't just take your car (though they can still pursue you for the debt).
Comparing the Two
Secured vs Unsecured at a Glance
| Feature | Secured | Unsecured |
| Interest Rate | Lower (5-10%) | Higher (8-15%+) |
| Car Ownership | Lender has interest until paid | You own it outright |
| Loan Amounts | Higher limits | Lower limits |
| Approval | Easier (asset backing) | Stricter (credit-based) |
| Default Risk | Car can be repossessed | Debt collection, no repo |
Which Should You Choose?
Choose Secured If:
- You want the lowest possible interest rate
- You're borrowing a larger amount
- You plan to keep the car for the life of the loan
- You're confident in your ability to make repayments
Choose Unsecured If:
- You want full ownership of the car immediately
- You might sell the car before the loan ends
- You're buying a cheaper or older car that may not qualify for secured finance
- You value flexibility over the lowest rate
A Note on Older Cars
Many lenders won't offer secured finance on cars over a certain age (often 10-12 years old at the end of the loan term). If you're buying an older vehicle, an unsecured personal loan might be your only option.
The Bottom Line
For most buyers, a secured car loan offers the best value — lower rates mean lower repayments and less interest paid overall. But if flexibility and outright ownership matter more to you, an unsecured loan has its place.
Not sure which is right for your situation? Get in touch and we'll help you compare options based on your specific circumstances.
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