How does a secure car loan work?

A secure car loan is labelled ‘secure’ as the loan requires a form of security to place against the loan. In the case of a car loan, the security is the asset being purchased - the car. This means that in the event you fail to meet loan repayments, the lender has the right to sell or repossess the asset in order to recuperate the money that was lent for its purchase.

This doesn’t mean you’re off scot-free with unsecured loans, however; with an unsecured loan, the lender might take you to court to recuperate funds through other means.

While some banks or lenders will only accept the car being purchased as a form of security, others may accept additional vehicles owned by the borrower, home equity, term deposits or savings accounts.

Secure car loans will typically be offered by banks and lenders as a cheaper alternative to unsecured car loans, given they are backed by a form of security. Banks and lenders will also consider secure car loans as less of a risk than unsecure car loans based on this factor.

That said, there’s a trade-off in order to be eligible for a secured car loan; the lender usually wants the vehicle being purchased to meet age requirements - typically new or up to five years old.

How to compare secured car loans

There are a number of factors to consider when comparing secured car loans, including:

  • Interest rates - With a secured car loan you’ll typically be offered the choice of two options, either a fixed or variable interest rate. Fixed interest rates will provide repayment certainty over the life of the loan allowing you to budget with greater ease, while variable rates provide flexibility, generally with the addition of features such as the ability to make extra repayments. The interest rate determines the amount of interest you will pay over the life of the loan. Ensure you take advantage of the table above to compare interest rates across banks and lenders to find the most competitive deal.

  • Fees - Banks and lenders may charge an array of fees including application fees, early repayment fees, and ongoing account fees. Make sure you compare these fees across different products and take them into account when calculating the total cost of the loan.

  • Features - Consider the features on offer across different products provided by banks and lenders. Do they allow you to make additional repayments? Is there a redraw facility available?

  • Loan term - The loan term is the length of time you have to repay the loan. A longer loan term means lower monthly repayments, but it also means you will pay more in interest charges over the life of the loan. Consider what loan term best suits your current and future financial position.

Secured car loan pros and cons


  • Lower interest rates: Secured loans typically come with lower interest rates which can help you keep your repayments manageable. This is because the lender can repossess the asset in the case you default on your loan.

  • Approval: Given the lender has reassurance in the form of security, the application and approval process can generally be a quick and easy process.

  • Flexibility: Secured car loans will generally come with more flexible repayment options, such as the ability to make extra repayments or pay off the loan early without penalty.

  • Longer loan terms: Secured car loans often come with longer repayment terms, which can provide you with more time to repay the loan. More time may mean lower monthly repayments which can boost affordability of the car loan.


  • Car age restrictions: Banks and lenders will typically only offer secured car loans for brand new cars, or used cars under a certain age - typically up to five years old.

  • Repossession: If you cannot make the loan repayments on time, you run the risk of having the bank or lender potentially come knocking to reclaim your vehicle. Generally banks and lenders will only resort to such a method as a last-ditch attempt to get you to make loan repayments. Banks and lenders offer the ability to apply for hardship assistance if necessary to prevent problems from arising.

  • Limited loan amount: With a secured car loan, you will generally only be able to use the loan amount to purchase a vehicle itself. This means you will typically have to pay for insurance, registration or any upgrades out of pocket.