The Ultimate Guide for Secured Loans for Cars

Secured Car Loan

Secured car loans are an excellent option if you’re looking for your first car or need an upgrade. These days, there are many ways you can buy a car. You can pay for it outright, take out personal loans, pay for it on a credit card or remortgage your home. However, the most common method involves using the car you’re purchasing as security.

How Do Secured Car Loans Work?

In secured car loans, the loan is secured against the car you intend to purchase, meaning it serves as the collateral to guarantee repayments. If you default or fail to make repayments, the lender can repossess the vehicle.

Similar to mortgages, lenders retain ownership over the car until you make the final payment. Secured car loans are paid off in fixed monthly instalments throughout the loan term. If you make all your repayments on time, you’ll own your car outright once you’ve made every payment.

Important Considerations for Secured Car Loans

Buying a car is a major purchase. Before you commit to a secured car loan, you have to ensure it’s suitable for your circumstances. Here are some crucial things you need to think about:


Before you take out a secured car loan, you must ensure you can comfortably afford to make ongoing monthly payments. The repayments shouldn’t be too much of a money drain on your finances that you’re left in financial hardship or forced to borrow more to afford daily living expenses.

Lenders offer the best car loan deals to borrowers who use their cars as security because they know they can sell the car as a last result to get their money back if you fail to repay.

Consider experimenting with car loan repayment calculators to determine the best-secured car loan amount for your situation and the loan term and interest rate that best suits your needs. Most lenders also offer free no-obligation quotes that can help you determine if you can afford a secured car loan.

There May Be Restrictions on The Age of The Car

Secured car loans usually have different guidelines about the age and condition of the car. Generally, the car you’re purchasing may need to be fairly new or not more than five years old.

Such restrictions ensure that if the lender is forced to sell the car, they can get enough money back to cover their loss, which can be difficult for older cars.

However, you can still find lenders with no restrictions. Whether it’s a reliable second-hand car or a classic old model you’ve had your eyes on, you can easily find a suitable lender online!

You Can Borrow More

Because the loan is secured, you can easily borrow a higher percentage of the car’s value than you’d be able to otherwise. However, this is usually dependent on the lender and your unique circumstances.

Some may offer a secured car loan that only covers the cost of the car. Others may let you borrow 100% of the car’s value plus associated costs and insurance. In such cases, you’ll not need to put up any upfront deposit or down payment to buy a car.

Fixed Vs. Variable Interest Rates

You can find car loans with two different interest rates. With fixed rates, the interest rate you’re charged remains the same over the loan’s lifetime, providing you with the security of set monthly repayments.

Variable interest rates can change at any time, and this can increase or decrease your repayments. A fixed rate makes it easier to budget your finances to avoid missing repayments, but a variable rate is less predictable.

Early Or Extra Repayment Penalties

Most secured car loans don’t come with early payment or extra payment penalties. You’re allowed to pay out your car loan at any time or make extra payments.

With an extra payment’s facility, you can greatly reduce your repayment timeframe. It allows you to put any extra money towards your loan, and this can be from anything like a windfall, a bonus at work or a sizeable tax return.

Remember, not all lenders allow early or extra repayments. Ensure you review all the terms of the loan before you commit to avoid penalty fees.

Repayment Flexibility

Most secured car loans are repaid in monthly schedules with fixed amounts and interest rates. However, some lenders can give you the flexibility of choosing a suitable repayment schedule according to your income schedule, lifestyle or goals.

Some lenders allow you to choose between weekly, fortnightly or monthly repayment cycles. If you can manage it, choosing a weekly or fortnightly repayment schedule allows you to divide the monthly payment into two or four.

It can help you get ahead on your repayments, and you can effectively make an extra month’s repayment every year without even noticing it!

Secured Vs. Unsecured Car Loans

Although rare, you can also find lenders who offer unsecured car loans. With unsecured car loans, you don’t have to use your car as collateral or any other of your assets.

The risk is greater for the lender than the borrower in unsecured car loans, which translates to higher interest rates. Interest rates are often an indication of the level of risk the lender is taking on by lending you money.

Secured car loans come with lower interest rates because they represent less risk for the lender. They can repossess your car if you default. In unsecured car loans, there’s no asset to repossess if you fail to repay. That doesn’t mean you can get away with defaulting.

You can negatively harm your credit score, limiting your future credit options. The lender can also pursue legal actions against you in court to recoup their money.

A secured car loan is your best bet if you want to buy a car at the lowest interest rates available.

Secured Car Loan with Bad Credit

You can get a secured car loan even with bad credit. The risk to the lender is greatly reduced by the security, regardless of your credit score. Unlike an unsecured car loan, lenders will not pay too much attention to your credit history. Instead, they check more than your credit scores and focus on your affordability based on your current monthly income and expenses.

Final Thoughts

Secured loans are generally easier to achieve as there’s less risk to the lender. If you’re looking for a simpler way to get a vehicle loan, a secured loan might just be it!

(This article is written by Mortgageable, UK’s leading secured loans provider)

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