Secured and unsecured loans.

2min read
Posted 10 April 22

Like many other loan types, the two main vehicle loans are secured and unsecured. These are also called auto and personal loans, with an auto loan using the car itself as security.

Secured car loans.

A secured loan is where your car lender uses the car itself as security against non-repayment. So if you don't make your repayments, your lender has the right to take your car back off you. The benefit of a secured loan is that you'll usually get charged lower interest rates because there's less risk for the lender. 

A secured loan is quite common for more expensive items such as a house or car, where the security is the asset itself. So, when repayment is repeatedly missed and notice of repossession is given, the vehicle becomes the property of your lender. This process allows them to sell the car to make up for any costs lost on non-repayment.

Unsecured car loans.

Unlike secured loans, you won't have to pledge (promise) your car as security. This also means you don't risk losing your ride if you stop making your loan repayments. But that's no excuse to stop paying your loan back! Your credit score will drop, and you'll have less chance of getting a loan or credit amount.

Another thing to be wary of is the interest rate on unsecured loans. Because the lender has more to lose if you default (given they have no security), you'll likely have to pay a higher interest rate to begin. This is to make up for the additional risk you pose of not repaying what you owe.


Stop! Disclaimer!

Info and tools on the Yonda website are to be used as a guide only and do not constitute financial advice. Use Yonda as a starting point and then seek professional advice.