Most car loans require you to use your car as collateral. And there are many benefits, like locking in lower rates, and lower monthly payments. The risk? If you default, you could lose your car.
A secured car loan typically has competitive interest rates and allows a buyer to use the car as security for the loan. This appeals to the lender because it can repossess the vehicle if the buyer defaults — alleviating risk. With less risk come lower interest rates.
The car can be new or used — in good condition — and the rates offered for a secured car loan can be fixed or variable.
There are several key differences between these two types of loans:
Technically, not all car loans are secured with collateral, though that’s the norm. That might be because it already has collateral built into it— you don’t have to get your vehicle appraised to make sure it’s worth what you say it is.
Lenders sometimes prefer secured loans because it poses less risk to them. If you can’t pay back your loan, it can make up for its loss by repossessing and selling your car.
Secured car loans can come with either fixed or variable interest rates and it’s important to select the option that best meets your needs.
Let’s look at the difference between them:
| Fixed interest rate | Variable interest rate |
|---|---|
Pros
Cons
| Pros
Cons
|
Finding the best secured car loan depends on things like your financial situation and the length of the loan. When shopping around, some other factors you can use to determine the quality of the loan are:
Secured car loans only cover the cost of the car you’re buying. The bank or lender may offer you preapproval for a certain amount to give you a ballpark figure of what you can spend on a car.
Whether or not you’re able to include additional upfront costs such as insurance and registration in the loan amount will depend on the lender and how much you’ve been approved for.
There are many different types of car loans and some may be better for you than others. Compare the fixed rate personal loan alternatives below.
Buying a new vehicle isn’t the only time you can use your car as collateral for a loan. You can also use it to help you qualify for other personal expenses:
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