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Unsecured car loans
Get the funds you need without restrictions on what type of car you can purchase.
If you want to purchase a new or used car but don’t want to use the vehicle as security against the loan, an unsecured car loan may be a better choice.
Our guide gives you the lowdown on unsecured car loans, so you know what it involves. You can also compare several unsecured car loan options below.
Unsecured car loans comparison
For further information on any of these loans, click “More Info” to be taken to our review pages. To apply for a loan, click “Go to site.”
What is an unsecured car loan?
An unsecured car loan allows you to purchase a vehicle without attaching the car itself as security. With these loans, lenders typically don’t restrict the type of vehicle you can buy, for example, under a certain age or of a specific value.
However, an unsecured car loan is riskier for the lender because there is no security attached, so you should expect a higher interest rate than you would with a secured car loan. You may also be subject to stricter eligibility criteria regarding your financial stability.
Is an unsecured car loan right for me?
An unsecured car loan is an option to consider in a few situations:
You’re purchasing an older or second-hand car
An unsecured car loan can give you more flexibility for the age and type of car you want to buy. However, secured car loans often come with restrictions regarding the type of vehicle you can use as security and limit the maximum age limit.
You want to borrow funds for two or more purposes
For example, if you’re borrowing money to buy a car, consolidate debt, purchase your rego, or even get the vehicle modified, an unsecured car loan may work better for you. With a secured car loan, you can typically only borrow the car’s value, so the lender is sure it can recoup its cost if you default on the loan.
You don’t want to use your car as security for the loan.
Using your vehicle as a guarantee for a loan can give you access to lower interest rates and help you receive approval. However, if you don’t want to risk losing your vehicle if you default on the loan, you may opt for an unsecured loan. Although lenders can’t take your car if you default on the loan, remember they can take other legal action to recoup the money.
Unsecured vs secured car loans: The benefits and drawbacks
|Unsecured car loans|
|Secured car loans|
How to take out an unsecured loan to buy a car
The borrowing process may differ slightly between lenders, but typically you need to take the following steps when financing your vehicle with an unsecured loan:
Find your vehicle
It’s good to get an idea of what kind of car you want to buy and how much it costs before you start looking for a loan. Even if you don’t settle on a specific vehicle, get a ballpark figure to begin comparing your loan options.
Work out what repayments you can afford
How much can you comfortably repay each month? Remember to take into account the on-road costs for your new vehicle.
Compare unsecured car loans
Now it’s time to start your comparison. First, look at how competitive the interest rate is and check for upfront and ongoing fees. The comparison rate gives you a good idea of the overall cost as it includes interest and fees. Finally, check for essential features, such as repayment flexibility or the ability to repay the loan early. See our “how to compare” section below for more information.
Check that you are eligible
Lenders have set minimum eligibility criteria that you need to meet to receive approval for a loan, which typically includes: a minimum age requirement, minimum income, credit history conditions and employment requirements. If you are unsure if you meet any of the set criteria, contact the lender directly.
Apply for the loan
Once you’re sure you meet the minimum requirements, you can click “Go to Site” to apply online. Have your ID, financial and employment documents on hand to complete the application.
Organise your funds with the lender
Lenders disperse funds in different ways. For example, they may prefer to pay the car seller directly or send the funds to your bank account. Discuss the best way to receive the funds with your lender.
How can I compare an unsecured car loan?
Here is what to look at when comparing your options:
The interest rate is the essential thing to take into account. Typically, the lower the rate, the lower your repayments are. So the first thing you should do is compare the interest rate different lenders offer by checking the “interest rate” column in our comparison table above.
The comparison rate reflects the loan’s actual cost because it considers the payable fees and the interest rate. Therefore, if the comparison rate is considerably higher than the interest rate, it means that the loan comes with several costs attached.
Look for up-front costs, such as application or establishment fees, plus ongoing charges such as monthly or annual fees. You may also find fees for additional payments or repaying the loan early, making the loan restrictive, so check if these apply.
Most lenders let you choose between weekly, fortnightly or monthly repayments. Which repayment arrangement suits your lifestyle best? Also, check whether you can make additional repayments and repay the loan early without penalty. Early repayment of a loan can save you money over the life of the loan. Consider if this flexibility is essential to you.
Redraw facilities allow you to withdraw any extra repayments you put into your car loan. These can be useful in emergencies when you may need cash. Would you benefit from a redraw facility? If it’s something the lender offers, check if a fee or limit applies.
Summary: What to remember about unsecured car loans
- Interest rates are higher than secured car loans
- There are no restrictions on the car you can purchase
- There may be more stringent eligibility criteria
Always make sure you compare other options before you decide on a car loan. Ensure you understand all the costs involved, including any early repayment fees and the loan’s comparison rate.
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