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Secured vs Unsecured Car Loans – Pros and Cons.

If you’re seeking finance to fund a new car purchase, you might be considering a number of different options. If you decide to go down the route of taking out a car loan, you may have the choice of taking out a secured or an unsecured loan.

What’s the difference between a secured and an unsecured car loan, and what are the pros and cons of each?

Secured Car Loans
A secured car loan is a personal loan where you use an asset as collateral against the loan you’re taking out. With a NOW Finance secured car loan, and with most car loans, the asset used as collateral will be the car itself. This is in the same way as a mortgage is secured against your home. If you fail to keep up with your mortgage repayments, your home will be repossessed.

Likewise, with a secured car loan, if you don’t keep up with the repayments, you could lose the car, which will then be sold to repay some or all of the outstanding loan amount.

Unsecured Car Loans
Knowing what you now know about what a secured loan is and how they work, unsecured loans are fairly self-explanatory.

With an unsecured loan, lenders have no security by way of an asset being used as collateral against the loan repayments. Unsecured loans are riskier for lenders, as they are likelier to lose significant sums of money if a borrower fails to make repayments, in comparison to a secured loan where they will at least be able to acquire the vehicle.

What are the Main Differences Between Secured and Unsecured Loans?
Aside from the differences in terms of what each loan type means, there are two other major differences between secured and unsecured loans.

The Amount You Can Borrow
Borrowers taking out a secured loan can usually borrow more, than if they were to take out an unsecured loan.

The security of the asset means that lenders have more confidence in lending finance, therefore they’re able to offer a larger loan sum.

Your Interest Rate
Borrowers who take out a secured loan represent a lower risk to lenders. As the borrower has something on the line if they fail to make repayments, they are perceived as being more likely to ensure they keep their repayments up to date.

Again with the added security of the asset coming into play, lenders may offer secured borrowers a lower interest rate.

The combination of these factors means that if you are considering applying for a secured car loan, it may allow you to borrow more funds, potentially at a lower rate.

What Else Should I Consider?
On the face of it, it might seem like taking out a secured loan rather than an unsecured loan is a no-brainer. You can borrow more at a lower rate of interest. However, the big consideration you need to make is whether you could afford to lose the car in the event of not keeping up with repayments on the loan.

Taking out a secured loan may be cheaper and a more attractive deal, but what would happen if you couldn’t keep up with repayments and were to lose the car? If you rely on your car to get to work or for other aspects of your life, you could lose a lot more than just the car.

Choosing Between a Secured or an Unsecured Car Loan
Weigh up the following if you’re choosing between a secured and unsecured car loan:

– What car do you want to buy?
– How much do you need to borrow to buy the car?
– How much are you willing, and can afford, to repay each week, fortnight, or month?
– How long do you want your loan term to be?
– Can you afford to be without a car if you take out a secured loan and don’t keep up with the repayments?

Which Car Loan is Best for You?
Consider your circumstances and all of the points we’ve looked at in this guide before deciding whether a secured or unsecured car loan is best for you.

If you decide to proceed with a car loan, NOW Finance now also offers joint personal loans that you and your partner can co-apply for, which may also help you with your borrowing capacity and get the funds you need for the car you really want.

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.

Categories: Category: Industry Analysis, Understanding Credit

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New loans only. Applications for finance are subject to NOW Finance’s lending and approval criteria. Terms and conditions may apply. No fees apply however if you do not comply with the terms of your loan, we may pass on to you any third party enforcement or recovery costs incurred by us. Settlement times may vary depending on individual circumstances. Loan repayment terms range between 18 months to 7 years. For unsecured loans you can borrow between $5,000 to $50,000 with interest rates ranging from 5.95% p.a. (5.95% p.a. comparison rate*) to 17.95% p.a. (17.95% p.a. comparison rate*). For secured loans you can borrow between $15,000 to $100,000 with interest rates ranging from 4.45%p.a. (4.45% comparison rate*) to 15.45% p.a. (15.45% p.a. comparison rate*).  


The Comparison Rate is designed to help you understand the overall cost of the personal loan. It combines the amount of the loan, loan term, repayment frequency, interest rate, fees and charges into a single rate to show the total true cost of the loan. The comparison rates for the NOW Finance loans are based on a loan of $30,000 over 5 years. WARNING: The comparison rates given are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. NOW Finance does not charge any fees therefore the true cost of the loan or Comparison Rate will always equal the interest rate quoted.


An unsecured personal loan of $30,000 borrowed for 5 years with the interest rate of 5.95% p.a. (5.95% p.a. comparison rate), would estimate to a minimum total amount payable of $34,686.60 via the weekly payment option. Rates are subject to change.


Our confirmed guaranteed personalised rate may change if you provide NOW Finance with incorrect personal information or security details. In some circumstances, NOW Finance may require further information from you in order to provide you with your guaranteed personalised rate.

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