Secured vs Unsecured Car Loan: What’s the Difference and Which One Is Right for You?

Looking for a new set of wheels? Maybe you’ve got your eye on your ‘dream car’ but have you thought about how you’re going to finance it? If you’re shopping for a car loan, you’ll quickly run into a key decision: do you go for a secured or unsecured car loan? The difference matters because it can affect your interest rate, your approval odds, your loan terms and even what happens if life throws you a curve ball.

We frequently get asked about this so we thought we would break down what a secured car loan is, what an unsecured loan means, the difference in secured and unsecured loans and who each option might suit, so you can choose with confidence.

Quick summary: Secured vs Unsecured Car Loan

• A secured car loan is backed by an asset (usually the car you’re buying).

• An unsecured car loan has no asset tied to the loan, so the lender is taking on more risk.

That single difference often leads to:

• Lower rates and longer terms for secured loans

• Faster, more flexible borrowing for unsecured loans (but usually at a higher rate)

What is a Secured Car Loan?

A secured car loan is a loan where the lender takes a form of security over the vehicle (or another asset). In most cases, the car itself is used as security.

How a secured car loan works

1. You apply for finance for a specific vehicle (new or used).

2. The lender approves the loan based on your income, credit history and the vehicle details.

3. The car is purchased and the lender registers an interest in the vehicle.

4. You repay the loan in instalments over an agreed term.

Because the lender has security, they typically view it as lower risk than an unsecured loan. Secured car loans are usually easier to obtain because of this.

Benefits of a secured car loan

• Potentially lower interest rates compared to unsecured loans

• Higher borrowing limits may be available

• Longer loan terms can reduce monthly repayments

• Often a good fit for vehicle purchases with clear details (make/model, price, dealer/private sale)

Things to watch for:

• If you don’t meet repayments, the lender can repossess the vehicle (because it’s security).

• Some secured loans may have restrictions based on:

  • vehicle age (e.g., older cars may be harder to finance)

  • vehicle type or condition

• You may need comprehensive insurance, depending on the lender.

What is an Unsecured Car Loan?

So, what does an unsecured loan mean in a car finance context? An unsecured car loan is finance that isn’t backed by the car (or any asset). The lender is approving you based mostly on your personal financial position, rather than relying on the vehicle as security.

How an unsecured car loan works

1. You apply for a personal loan amount.

2. Approval is based on your income, expenses, credit history, and overall financial stability.

3. You use the funds to buy a car (or sometimes other purposes, depending on the loan).

4. You repay the loan over the agreed term.

Benefits of an unsecured car loan

• More flexibility: you may not need to provide full vehicle details upfront

• Can suit older vehicles that don’t meet secured loan criteria

• May be useful for private sales, classic cars, or non-standard purchases

• The car usually isn’t directly tied to the loan as security

Things to watch for:

• Interest rates are often higher than secured finance because the lender takes on more risk

• Borrowing limits may be lower depending on your profile

• Terms may be shorter, which can increase monthly repayments

Difference in Secured and Unsecured Loans

Here’s a practical way to compare the difference in secured and unsecured loans when you’re choosing car finance:

Security

• Secured: backed by the car (or an asset)

• Unsecured: no security attached

Rates and affordability

• Secured: often lower rates and can be more cost-effective over time

• Unsecured: often higher rates, but can be simpler and quicker for some buyers

Flexibility

• Secured: often requires vehicle details and may have vehicle criteria

• Unsecured: typically more flexible on vehicle type and age

Risk

• Secured: the car can be repossessed if repayments aren’t met

• Unsecured: the lender can still pursue recovery action, but the car isn’t usually the direct security

Who Might Each Type of Loan Suit?

A secured car loan might suit you if:

• You’re buying a newer car (or one that meets lender criteria)

• You want a lower interest rate and predictable repayments

• You’re borrowing a larger amount and want a longer loan term

• You’re comfortable with the car being used as security

An unsecured car loan might suit you if:

• You’re buying an older car or a vehicle that doesn’t qualify for secured finance

• You need more flexibility (e.g., private sale, unique vehicle, multiple purposes)

• You want to avoid tying the loan directly to the car as security

• You have strong income/credit and can access competitive unsecured options

Is It Better to Get Car Finance Through a Finance Broker or a Car Dealership?

When you’re weighing up secured vs unsecured car loan options, it’s also worth thinking about where you arrange the finance. Many buyers default to dealership finance because it feels convenient, but working with a finance broker can give you more choice and control.

Here’s how they compare.

Car Finance Through a Dealership: Pros and Cons

Why people choose it:

• Convenience: You can choose the car and apply for finance in the same place, often on the same day.

• Fast approvals: Dealers may have streamlined processes and can sometimes get a quick outcome.

• Promotions: Occasionally, dealers offer special rates or incentives on selected models (often tied to specific lenders or campaigns).

Potential drawbacks

• Limited choice: Dealership finance is typically limited to the lender panel the dealer uses, so you may not see the full market.

• Less transparency on cost: Interest rate isn’t the only cost — fees, loan term, balloon payments and add-ons can make a deal look cheaper than it really is.

• Upselling risk: Some buyers are offered extras (warranties, paint protection, loan insurance) rolled into the loan, increasing the amount you repay over time.

• Less tailored advice: The finance offer may be built to suit the vehicle sale rather than your long-term budget or goals.

Car Finance Through a Finance Broker: Pros and Cons

We obviously believe that talking to a finance broker is the best option when it comes to getting finance for a car. Here’s why:

• More lenders, more options: A broker can compare different lenders and products to find a solution that suits your needs — whether that’s a secured loan, an unsecured loan, or something with more flexibility.

• Better fit for your situation: Brokers can match you with lenders that align with your deposit, credit profile, employment type (including self-employed), and the vehicle you’re buying.

• Clarity and negotiation: A broker can explain the fine print (fees, early exit costs, balloon payments, repayment structure) and negotiate where possible.

• Support from application to settlement: If the lender needs extra documents or the car changes, a broker can help keep things moving.

Potential drawbacks

• Slightly more upfront effort: You’ll provide documents and details to your broker, which can feel like an extra step (though it often saves time overall).

• Not every lender is available: Some lenders only deal direct, but brokers typically still have a wide panel of options.

So, Which Is Better?

It depends on what matters most to you. If you want to compare multiple lenders, understand the true cost and choose a loan structure that fits your budget, a finance broker is often the smarter long-term move.

A good rule of thumb: if you’re not 100% sure you’re getting a competitive deal (or you’re weighing secured vs unsecured options), it’s worth speaking to a broker before you sign anything.

FAQs: Secured vs Unsecured Car Loan

What is a secured car loan?

 A secured car loan is a loan backed by security, usually the car you’re buying. Because the lender has security, rates may be lower and terms may be more flexible.

What is an unsecured car loan?

 An unsecured car loan is finance with no asset tied to the loan. Approval is based on your financial position, and rates are often higher than secured loans.

What does unsecured loan mean?

 An unsecured loan means the lender isn’t relying on an asset (like a car) as security. You still must repay the loan, but the car isn’t typically used as collateral.

What is the difference in secured and unsecured loans?

The main difference is security: secured loans are backed by an asset (the car), while unsecured loans are not. This often affects interest rates, flexibility, and approval criteria.

Which is better: secured vs unsecured car loan?

It depends on your situation. Secured loans may suit buyers wanting lower rates for eligible vehicles, while unsecured loans may suit buyers needing flexibility for older or non-standard purchases.

Is it better to get car finance through a finance broker or a car dealership?

It depends on your priorities. Dealership finance can be convenient and fast, but it may involve a limited lender panel and less transparency on fees, add-ons and overall loan cost. A finance broker can compare multiple lenders and loan structures, explain the fine print, and help you choose an option that fits your budget and circumstances.

How CJG Finance Can Help

Choosing a secured vs unsecured car loan isn’t just about interest rates - it’s about finding a structure that matches your goals, your cash flow and the vehicle you’re buying.

At CJG Finance, we’ll compare options across a range of lenders and explain the pros and cons in plain English - so you can choose the right car finance structure without the pressure or guesswork. We can help you:

• Compare secured and unsecured options across a panel of lenders

• Match you with loan features that matter (fees, flexibility, early payout options)

• Understand lender vehicle rules (age, type, private sale vs dealer)

• Strengthen your application to improve approval odds

• Move quickly when you’ve found the right car

Whether you’re buying your first vehicle, upgrading the family car or financing a work ute, we’ll help you choose the option that fits - not just the one that looks good on paper.

The information contained in this post is for general guidance only and does not constitute personal advice. It's important to do your own research as regulations, fees and charges change over time.

To find out more, contact us or call Colin at CJG Finance on: 0402 413 917 or email him: cgreen@cjgfinance.com.au