Buying guide
Car Finance 101: Unsecured vs. Secured loans for your next car
Secured car loan, unsecured car loan. What are the differences? We take a deep dive, and explain the details.
What’s the difference between a secured and an unsecured loan?
Secured Car Loans
Unsecured Loans
| Feature | Secured Loan | Unsecured Loan | |||
|---|---|---|---|---|---|
| Collateral Requirement | Collateral Requirement | The vehicle being purchased is used as security. | The vehicle being purchased is used as security. | No collateral is required. | No collateral is required. |
| Typical Interest Rate Range | Typical Interest Rate Range | Lower (9.65% - 22.70% p.a.) | Lower (9.65% - 22.70% p.a.) | Higher (13.90% - 23.90% p.a.) | Higher (13.90% - 23.90% p.a.) |
| Risk to Borrower | Risk to Borrower | High: Risk of the vehicle being repossessed upon default. | High: Risk of the vehicle being repossessed upon default. | Lower: Financial risk is limited to fees and credit score damage. | Lower: Financial risk is limited to fees and credit score damage. |
| Risk to Lender | Risk to Lender | Risk to LenderLower risk, as the asset can be repossessed to recover debt. | Risk to LenderLower risk, as the asset can be repossessed to recover debt. | Higher risk, as there is no asset to recover upon default. | Higher risk, as there is no asset to recover upon default. |
| Ideal Borrower Profile | Ideal Borrower Profile | An individual with a stable financial situation who is comfortable with the risk of repossession in exchange for a lower interest rate. | An individual with a stable financial situation who is comfortable with the risk of repossession in exchange for a lower interest rate. | An individual who prioritises protecting their assets, requires flexibility, or is purchasing a vehicle unsuitable for use as collateral. | An individual who prioritises protecting their assets, requires flexibility, or is purchasing a vehicle unsuitable for use as collateral. |
| Example Providers in NZ | Example Providers in NZ | Specialist auto-financiers, some banks and credit unions. | Specialist auto-financiers, some banks and credit unions. | Major banks), personal loan providers. | Major banks), personal loan providers. |
How does a secured car loan work?
What Lenders Look For
Common Fees
Your Credit Score
Making Your Choice
Author
Other articles you might like
