How do car loans work?
A car loan offers you a flexible way to acquire or upgrade a motor vehicle, whether that’s a car, a ute, a motorcycle, or an alternative form of transport.
Ordinarily, a car loan is a secured loan: that is, the car you intend to purchase is used as collateral for the loan. This means that if you fail to meet your repayment obligations, the lender may be able to repossess and sell the vehicle to cover their losses. If you apply successfully for a secured loan, you’ll usually need to take certain additional steps, such as:
- Informing the loan provider of your new vehicles chassis number, vehicle identification number (VIN), registration number, make, model, year, and colour
- Providing the lender with a copy of the vehicle registration papers
- Adding the lender to your vehicle insurance policy as an interested party
If you’re looking for a more flexible alternative, you should know that it’s also possible to use an unsecured personal loan to finance your purchase of a vehicle (new or used). Indeed, this is a popular option among many RateSetter customers because it can offer more flexibility and doesn’t require you to guarantee the loan with collateral. With an unsecured loan, you have control over how you spend the loan amount. This means that you can use it to purchase the vehicle and cover associated costs, such as insurance, registration, tyres, and maintenance.
An unsecured loan works like a standard personal loan: the lender finances the purchase of your vehicle and you, in return, commit to repaying the debt, with interest, at regular intervals over the lifetime of the loan.
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.