Unsecured car loans

Is an unsecured car loan right for me?

An unsecured car loan is an option to consider in a number of situations. Consider the following:

You're purchasing an older or second-hand car

Secured car loans come with restrictions regarding the type of vehicle you can use as security. Restrictions typically include a maximum age limit on the car and a minimum value.

While an age limit can extend up to 12 years with some lenders, it can also be as little as 2 years.

Also, if the car does not meet certain value criteria - the brand, model and condition of the car doesn't make it worth enough money to qualify as loan security - you may want to consider an unsecured car loan. However, keep in mind secured used car loans are available in many car purchase cases.

You want to borrow funds for two or more purposes

If you're borrowing money to buy a car and also consolidate debt, purchase your rego or even to get the vehicle modified, an unsecured car loan may work better for you. This is because you are generally only able to borrow the value of the car with a secured car loan, so the lender can be sure it will be able to recoup its cost if you default on the loan.

You don't want to use your car as security for the loan.

Using your car to guarantee your loan can give you access to lower interest rates and can also help you to get approved. However, if you don't want to risk losing your vehicle if you default on the loan, you may want to opt for an unsecured loan.

Unsecured vs secured car loans: The benefits and drawbacks

How to take out an unsecured loan to buy a car

The borrowing process may differ slightly between lenders, but generally you will need to take the following steps when financing your car with an unsecured loan:

1. Find your vehicle

   It's good to get an idea of what kind of car you want to buy and how much it will cost before you start looking for a loan. Even if you don't settle on a specific car, it's a good idea to get a ballpark figure so you can start comparing your loan options.

2. Work out what repayments you can afford

   How much will you be able to comfortably repay each month? Remember to take into account the on-road costs for your new vehicle when considering your budget.

3. Compare unsecured car loans

   Now it's time to start your comparison. Look at how competitive the interest rate is and check for upfront and ongoing fees. The comparison rate will give you a good idea of the overall cost as it includes interest and fees. Finally, check for features that are important to you such as repayment flexibility or the ability to repay the loan early. See our "how to compare" section below for more information.

4. Check that you are eligible

   Lenders have set minimum eligibility criteria that you will need to meet in order to be approved for the loan. This will typically include a minimum age requirement, minimum income, credit history requirements and employment requirements. Minimum eligibility criteria for loans are listed at the bottom of every finder.com.au review. If you are unsure if you meet any of the set criteria, contact the lender directly.

5. 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.

6. Organise your funds with the lender

   Lenders disperse funds in different ways. The lender 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 does an unsecured car loan work?

An unsecured car loan is a loan which allows you to purchase a vehicle without needing to attach the car to the loan as security. Because the car isn't used as security, there aren't restrictions on what type of vehicle you can buy. With secured car loans, factors like the age and value of the car affect the amount you can borrow (or if you can borrow at all). You can also borrow more to take out insurance or cover additional vehicle costs.

An unsecured car loan is a higher risk for the lender because there is no guarantee attached, and so you should expect a higher interest rate than you would with a secured car loan. You may also be subjected to stricter eligibility criteria in terms of your own financial stability.

How can I compare unsecured car loans?

Here is what to look at when comparing your options:

• Interest rate

  The interest rate is the most important thing to take into account. Generally, the lower the rate, the lower your repayments will be. The first thing you should do is to compare the interest rate that different lenders offer by checking the "interest rate" column in our comparison table above.

• Comparison rate

  The comparison rate reflects the true cost of the loan because it takes into account the fees that are payable as well as the interest rate. If the comparison rate is considerably higher than the interest rate, it means that the loan comes with a number of fees attached.

• Fees

  Look for up-front fees such as application or establishment fees as well as ongoing fees such as monthly or annual fees. You may also find fees for additional payments or repaying the loan early which can make the loan restrictive, so check if these will apply.

• Repayment flexibility

  Most lenders will let you choose between weekly, fortnightly or monthly repayments. Which repayment program would suit your lifestyle best? Also, check whether you can make additional repayments and repay the loan early without penalty. Repaying a loan early can save you money over the life of the loan. Consider if this flexibility is important to you or not.

• Redraw facility

  Redraw facilities allow you to withdraw any extra repayments you’ve put into your car loan. These can be useful in emergencies when you may need the cash. Would you benefit from a redraw facility? If it's something the lender offers, check if a fee or limit applies.

What to remember

Remember to compare your options thoroughly prior to submitting an application. Comparing options allows you to make the most informed decisions possible, and ultimately apply for the best loan for your circumstances. If you're interested in applying for any of the loans compared on this page, you can simply click "Go to site" to contact the lender directly.

Written by

Matt Corke

Head of Publishing Ventures

Matt Corke is Finder’s head of publishing ventures. Prior to this he was head of publishing for Australia, New Zealand and emerging markets. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates. See full bio