Secured vs. unsecured car loan

Car finance can seem like a minefield, especially if you’re not up to date with car finance jargon. You may have already come across unsecured and secured car finance and could be wondering what they are. If you’ve not heard of either, no worries! Our guide below compares secured vs unsecured car loans and explores examples of each. If you’re in the market for a new car on finance, explore all the options below to make an informed decision.

When you’re ready, apply online with us for a FREE finance quote!

To compare secured vs unsecured car loans, we’ll look at each in more detail and some of the most common examples of a secured or unsecured car loan.

What is a secured car loan?

A secured car loan does what it says on the tin. This type of car finance is secured against the car you get. This means the amount borrowed is secured against the car and you won’t actually own the car during the agreement. The ownership of the car usually lies with the lender. Secured loans can be less risky and can be bad credit car finance friendly. This is because the lender can take the car away from you if you fail to repay your loan. One of the main benefits of secured loans is that you could be offered a lower interest rate than other options. The main drawback is that the car could be repossessed if you fail to make your repayments on time and in full.

Examples of secured loans:

Both Hire Purchase and Personal Contract Purchase (PCP) are forms of secured loans, and they’re also two of the most popular ways to finance a car. They both have different structures, and it can be helpful to explore more on each to help make an informed decision about car finance.

Get a FREE quote for car finance!

Get Started.

Hire Purchase.

Hire Purchase car finance is one of the easiest car finance agreements to understand and it’s our bread and butter! Being a secured loan means the lender buys the car on your behalf from the dealer. The lender then owns the car during the agreement and the loan is secured against the car. This means if you can’t keep up with your car finance payments, the lender has the right to take the car away from you. In a Hire Purchase deal, you can choose to pay low or no deposit for a car and then split the loan amount with any interest into equal month payments over the term. You can take ownership of the car at the end of the deal once all payment have been made and a final option to purchase fee has been paid.

Find out more about how hire purchase car finance works.

Personal Contract Purchase.

Did you know PCP is actually a form of hire purchase? However, they are very different in structure. It’s a secured loan so the loan is secured against the car you buy. Just like, hire purchase, the lender owns the car and can repossess it if you fail to repay. PCP deals can be offered on both new and used cars and due to their structure, they can make new cars more affordable for drivers. This is because you don’t equally split the loan amount into monthly payments. Instead part of the loan is paid for over the term and there is a large balloon payment at the end of the deal.

Explore PCP car finance in more detail.

Logbook Loans.

Log book loans aren’t something we can offer, but they’re worth mentioning as they’re a type of secured loan. A log book loan is secured against the vehicle and the lender owns the car during the agreement. They’re called log book loans because it’s like handing your log book over to the lender as they will be the owner temporarily. Log book loans can be easy to secure and credit scores aren’t usually taken into account. However, log book loans can have extremely high APR rates and some log book loans can have APRs of around 400%! Log book loans are best to be avoided as they aren’t the most cost effective way to borrow money for a car.

What is an unsecured car loan?

When debating secured loans vs unsecured loans it wouldn’t be fair to only consider one. So, n unsecured car loan means that the car isn’t used as collateral and isn’t secured against any asset. You’ll own the car from the start of the agreement and the lender won’t be able to possess the car if you fail to repay. However, if you miss payments, the loan company can still request the money from you and take further legal action if you don’t repay your finances. Unsecured loans can be harder to obtain because lenders usually offer low rates based on a personal creditworthiness and financial history and they may be unsuitable for those with bad credit or no credit histories. The most popular way to get a car using an unsecured loan is through a Personal Loan.

Personal Loans.

A Personal Loan is an unsecured loan, and it can be one of the best ways to get a car. Personal Loans usually offer low interest rates, which helps to make your overall loan cheaper. Lenders do tend to be picky with who they offer Personal Loans to. Since there’s no collateral involved, the risk to the lender is greater. Personal Loans may be offered to people with good credit and who have a log history of good financial habits, as these people are less likely to default on their loans.

A personal loan is when a lender agrees to lend you money and you pay it back over an agreed term. If approved for a personal loan, the lender will deposit the requested amount into your bank account, usually the same day. Then, you can use the money to buy a car just like a cash buyer! You then make agreed monthly payments back to the lender over the term you requested. You’ll be the automatic owner of the car from the start and you’re free to modify or sell the car as you wish. Remember, the loan isn secure against the car so if you sell the car before the end of the loan term, you’ll still need to continue to make repayments.