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Advantages and Disadvantages of a Secured Car Loan

There are many ways you can buy a car these days, including paying for it outright, taking out a personal loan, redrawing from your home loan or even paying for it on a credit card. However, the most common way to buy a car is by taking out a car loan that is secured against the car itself.

A secured car loan operates just like any other loan: you take out a loan and then pay it down over time, paying off both interest and the cost of the car itself. The loan is considered secured as it is backed by the asset, which, in this case, is the car.


Advantages of a Secured Car Loan

Lower Interest Rates

The interest rate you pay on a loan is normally an indication of how much risk the lender is taking on by lending you money. When you secure a loan with an asset, the interest rate is often lower. For example, a home loan will have far lower interest rates than a personal loan.

When you take out a car loan that is secured by the car itself, this represents less risk to the lender as they can repossess the car in the event of a default. That means the interest rate and ongoing payments will be far lower than if the loan was unsecured, which can save you thousands of dollars.

Borrow More

Because you’re securing your loan, you can potentially borrow a higher percentage of the car’s value than you might be able to otherwise. In some circumstances, you might even be able to borrow 100% of the car’s value, plus insurance and associated costs. That means you won’t need to put any money down to buy a car, which can be a huge plus for many people.


For the most part, secured car loans can be paid out at any time. That means if you want to pay off your car loan after getting a bonus from work, it will be easy to do. Not all car loans are that flexible, and it’s worth studying all the terms of the loan prior to taking out any loan.


Disadvantages of a Secured Car Loan

Lender Can Repossess Your Car

In the event you default, which means missing your repayments, the lender is well within their rights to repossess your car. The fact that the loan is secured by the car itself protects the lender from non-payment. While many lenders will work with you if you are unable to pay, it’s important to understand that if you ultimately fail to make your repayments, you will lose your car and your credit history will take a big hit.

Easier to Overspend

Virtually all dealers offer some form of car finance, and when you can buy a car with a secured car loan with no money down, it is easy to overspend. Just because you can access finance doesn’t mean you need to put yourself in a position where you will be stretched financially.

It’s far more advisable to work with a finance broker, (like us for example!) and organise a secured car loan ahead of time, rather than getting finance through a dealer. You’ll likely get a better deal on finance, and you can be sure we have your best interests in mind.

If you would like to chat to us about purchasing a car (or finance and property), please give us a call on 02 8004 2222 or book an appointment.


Although we are located in Crows Nest, we service clients from St Leonards, Artarmon, Wollstonecraft, Cammeray, Northbridge, Naremburn, Neutral Bay, Greenwich, North Sydney, Waverton to Willoughby and all areas of Greater Sydney.

PS  This article is prepared based on general information. It does not take into account individual financial or property objectives or needs and is not financial product or investment advice.