Secured vs. unsecured car loans; which loan is right for you?
- Aug 09, 2019
Every time a luxurious, comfortable car passed by you, your heart skips a beat because it was always your dream to sit on the driving seat and ride your own personal car just like the one drive passed away. You start cursing your financial instability. But stop! Let’s rewind the whole situation. May be that car which you have seen is owned by a person who either uses new car finance or car loans to get behind the wheels.
There are hundreds or thousands of people in Australia who owns a car that has not been purchased through money. The people do use auto loans to buy a car they ever wanted. Although you are aware of the car loan thing but you are afraid to get it as you have little knowledge of it and find difficult to make a comparison between secured car loans and unsecured car loans. You have tried giving a shot to vehicle loans and then just give up. Don’t lose hope!
We know choosing a right car loan can be a hassle. That’s why; we set up this article in a way that gives you a clear picture and in-depth information about secured car loans and unsecured car loans in Australia. Remember the more you know about both types of car loans, the more sound decision you will make.
If you are not familiar with the term car loans and want to know more about it click here.
Let’s begin the secured car loans vs. unsecured car loans learning journey.
Secured Car Loans
When you offer some sort of security or collateral to the lender, it is called secured car loans. In the case of the Australian car loans, the security is generally your vehicle itself.
The sole reason behind the security is that it provides assurance to the lender that, in any case, you failed to make the monthly payments; a lender can recoup his or her debts by selling your car and settle the loan. Subsequently this back up method of secured car loans makes it a less risky for the lender. Keep these two main points in your mind in case lender sells off the car to settle the debt:
- - If the selling amount of the car is greater than you owing, you would receive the balance.
- - If the selling amount of the car is less than you owe, you would be liable for the outstanding debt.
Benefits of Secured Car Loans
The great benefits of the secured car loans are as follows:
1 - With secured car loans, you can access a lower car loan interest rate.
2 - Most banks allow you to borrow higher amounts i.e. $100,000.
3 - At the end of the loan term duration, the lender will remove its registered claim and you become a real owner of your car.
4 - With secured car loans, you have a fixed loan term with a fixed interest rate.
5 - Taking out a secured loan provides you the advantage of more affordable finance.
6 - In secured car loans, you can simplify your car ownership cost by including your comprehensive car insurance in the regular car payment.
Disadvantages of Secured Car Loans
However, every coin has two sides. Along with some benefits, secured car loans have following disadvantages too.
- 1 - In case of secured car loans, the biggest disadvantage is the possibility of getting your car being repossessed by the lender.
- 2 - If the car owner failed to make monthly payments on time, then the lender has every right to auctioned it to recoup for the loss.
- 3 - If the car is sold at a lesser price than the actual car loan, it becomes a liability on the car owner to pay off the remaining balance.
- 4 - With secured car loans, you are not able to purchase and older vehicle. The age of the car must be less than 7 years old.
Unsecured Car Loans
Unsecured car loans are a type of auto loan where a car owner doesn’t provide security to the car loan provider. That means there is no collateral attached to it. With unsecured car loans, the lender is posed to higher risk due to which the interest rate of unsecured car loan is comparatively higher than the secured car loans. You may also be subjected to stricter eligibility criteria in terms of your own financial stability.
Benefits of an Unsecured Car Loans
An unsecured car loan has its own positive aspects to consider while taking a decision of getting best car loans in Australia. Few are listed below:
- 1 - With unsecured car loans, a car owner must not have to worry about the car repossession by the lender as this type of loan is not secured against the value of an asset.
- 2 - As the car isn’t used as the security therefore a person can purchase any car of his or her choice regardless of the vehicle’s age.
- 3 - The amount a car owner borrows in an unsecured car loan doesn’t have to be strictly limited by his or her car’s value; he can also take out insurance or cover additional vehicle costs with it.
Disadvantages of an Unsecured Car loans
Like secured car loans, unsecured car loans also have some risks associated with it and it’s better to acknowledge them before getting involved in any type of car loan. The drawbacks of unsecured car loans are as follows:
- 1 - With unsecured car loans, you have to get a higher car loan interest rate.
- 2 - More strict eligibility criteria is observed against the loan as it is more of a risk for the lender
- 3 - Due to the higher risk, most banks allowed to borrow a smaller amounts i.e. $50,000
- 4 - A lender can take you to the court, if you failed to clear your car debt on time.
Mentioned above are the benefits and drawbacks of secured and unsecured car loans. Look at to their comparison and chose the best car loans that fulfills your requirement of purchasing a car. If you have enough financial stability that you can easily afford the monthly payments than go after the secured car loans. But if you are the lover of old vehicles then you should end up getting unsecured car loans. In both the cases, keep your circumstances in mind and choose the best car loan to make it a win-win situation.
Car Loan Lenders in Australia
After the car loan comparison, you are probably thinking of the common can loan providers in Australia. Here are some of the different lenders in the market for Australians car loans.
1.Banks and Credit Unions
Banks and credit unions are always our first choice when we look into car loan offerings. The reason might be that we already have our bank accounts in the respective banks and therefore we opt to manage our finances in one spot.
- 2 - Dealerships
Dealers work closely with the automaker’s finance group so going to a dealership can be one of your right choices if you want one-stop shop to buy your car and get a car loan. But it is highly recommended to know the different car loan rates in the market so that you can end up on getting the cheapest car loan.
Tips to Approve your Car Loans
After deciding a type of car loan and getting detailed information about the common lenders of your state, prepare yourself for the final step i.e. the tips on getting your car loan either secured car loan or unsecured car loan, approved. Mentioned below are some of the important tips.
A little research is very important before you apply for car loans. The best way is to look into different lender options, see the application requirements and get the different interest rates from the market. This type of information would be very helpful for you when it comes to negotiate with lenders to ensure a best deal for yourself.
2.Check Your Credit Score
It’s important to know your credit score once in a while. This helps you to understand your borrowing habits. This can impact the type of loan you can qualify for and interest rate offerings. For example, if you are a high scorer that means you can typically qualify for better interest rates. However, if you have bad credit history, you may find it difficult to get your loan approved unless you go to the right lender.
3.Check your Application
Majority of the people take their application for car loan approval lightly. Unlike the, make sure you triple check all your information and provide all the necessary documentation that have been asked for. Make sure your government issued I.D.s and other documents are still valid and up-to-date. In case of any missing information or expired documentation, your application will be considered invalid and you have to repeat the whole process again which would be very time consuming and hectic.
Now, you have all the information related to car loans. Then what are you waiting for? Go and get the best car loan and purchase your dream car.