Car Loans vs Secured Loans

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You have lots of options when it comes to financing a vehicle purchase.

It is common for consumers to go down the route of choosing the car first and then picking an appropriate finance option. We’re going to flip that on its head and look at a couple of ways you might consider funding your car before you even head to the dealership.


Well, if you decide on the type of financing that’s best for you first, you can start looking for cars accordingly. This approach can help you narrow down your search for a new car. It also means you won’t end up being seduced into an unsuitable finance deal on the back of falling in love with a particular set of wheels.

What is a car loan, and how do they work?

In this context, we’re talking about the finance arrangement you’d enter into at the dealership rather than a personal loan you’d use to buy a car. In this sense, a car loan is dealer arranged finance that allows you to drive your new vehicle away – sometimes on the day – while making regular repayments.

What type of cars can you buy with a car loan?

Car loans are often used to pay for brand new vehicles, but some dealers do offer financing options when buying used cars, too. Different dealers may have unique car loan offers on specific models of car, depending on how they work and whether you’re buying from a manufacturer-run dealership or not.

Do you need to make an upfront payment?

Depending on the dealer or finance provider, you may need to put down a significant deposit. This is often a percentage of the car’s value. Some providers will give you flexibility around the deposit and will adjust your repayments accordingly. Some dealers even offer deposit contribution deals too, effectively reducing the cost of your new car.

Do you pay off the entire loan during the loan term?

Here’s the kicker with car loans – you’ll typically have a balloon payment at the end of the arrangement. This could be to the tune of thousands of dollars and will usually be far more than the deposit.

Depending on the specific financing agreement you enter into, you may have the option to:

  • Make the balloon payment, after which you own the car.
  • Hand the car back to the dealer – any imperfections caused could also come at a cost.
  • Upgrade to a new car and continue making payments – although you will typically get this as part of a hire purchase agreement rather than something called a “car loan.”

It’s worth knowing what the end of your car loan looks like – you might find yourself with no option but to make the balloon payment!

Are car loans secured?

Yes, against your vehicle. As such, if you don’t make your repayments, the finance provider will take possession of the car.

Will using a car loan affect the type of car you can buy?

Yes, to some extent, as it will depend on the types of vehicles dealers offer car loans on.

Depending on the car loan on offer, you might be able to take advantage of favourable terms for buying a new car.

When choosing a car loan, you also get the added convenience of taking care of everything related to your purchase right there in the dealership.

What is a secured loan, and how do they work?

A secured loan is a more traditional personal loan, which you may use to pay for your new car or fund other “big ticket” purchases.

What does opting for a secured loan rather than a car loan mean in practical terms?

You could potentially buy an older car

While getting a car loan limits you to what’s in the dealership, you might have much more flexibility when choosing a car if you get a secured loan to help fund your purchase.

For example, here at NOW Finance, we provide secured loans for cars up to 20 years old. As well as the added flexibility around choosing a vehicle, you’ll also likely need to borrow far less than if you were to get a car loan for a new car. As such, a secured loan can be helpful if you have low affordability or want to minimise your debt and outgoings.

You can spend your secured loan on other things, too

If you’re looking for a car but it’s time for a holiday or getting around to planning some much-needed home improvements, you can take out a bigger loan and take care of these needs, too.

You don’t need to secure your loan against your car

Unlike a car loan, which will be secured against your car by default, you have more flexibility around how you secure your secured loan.

While lenders typically also use car as collateral for a secured loan, you can also use another vehicle or another high-value asset that a lender deems acceptable.

Car loans vs secured loans: Which option is best?

It depends on your circumstances and what you’re looking for from your new car purchase.

If you’re concerned with “keeping up with the Joneses” around your neighbourhood, then a car loan might be the best way to get a brand-new set of wheels on your drive quickly. In contrast, if you’re looking to spend less, aren’t buying a new car, or would like your loan to cover some of life’s other expenses, a secured loan may be a better option.

Find out if you’re eligible for a NOW Finance secured loan now!

If you’re looking for a secured loan, you can discover if you’re eligible for a NOW Finance loan and get your rate here.

Disclaimer:  This article contains general comments and recommendations only.  This article has been prepared without taking account of your objectives, financial situation or needs.  Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.

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