What is an unsecured car loan?
An unsecured car loan is a type of personal loan you can use to buy a vehicle, where the loan isn’t tied to the car you’re purchasing. That means you don’t need to offer the car or any other asset (like your home) as security.
Because the lender is taking on more risk, interest rates are usually higher than with secured car loans. They’re also likely to offer lower borrowing limits and shorter loan terms.
But on the plus side, the application process can be quicker and more flexible, especially if you’re looking to finance a used car, or borrowing for something more than just the vehicle itself, like registration or car insurance.
Unsecured car loans vs secured finance: What’s the difference?
Security needed | |
Secured | Yes, typically the car being financed |
Unsecured | None |
Loan term | |
Secured | 1-7 years |
Unsecured | 1-5 years (some lenders may offer up to 7 years) |
Interest rates | |
Secured | Starting from around 5% |
Unsecured | Starting from around 6% |
Borrowing limit | |
Secured | Typically between $5,000 and $150,000 |
Unsecured | Usually between $5,000 and $60,000 |
Loan purpose | |
Secured | To purchase a car |
Unsecured | To buy a car, but may also cover registration or insurance |
Type of interest rate | |
Secured | Typically fixed but some variable options |
Unsecured | Fixed or variable |
Fees | |
Secured | Generally lower |
Unsecured | Generally higher |
Age of vehicles eligible | |
Secured | Up to 12 years old but it depends on the lender |
Unsecured | Usually any age but some lenders may have maximum limits |
Balloon payment option? | |
Secured | Yes |
Unsecured | Yes |
Comprehensive car insurance required? | |
Secured | Yes, generally |
Unsecured | No |
| Secured | Unsecured | |
|---|---|---|
Security needed | Yes, typically the car being financed | None |
Loan term | 1-7 years | 1-5 years (some lenders may offer up to 7 years) |
Interest rates | Starting from around 5% | Starting from around 6% |
Borrowing limit | Typically between $5,000 and $150,000 | Usually between $5,000 and $60,000 |
Loan purpose | To purchase a car | To buy a car, but may also cover registration or insurance |
Type of interest rate | Typically fixed but some variable options | Fixed or variable |
Fees | Generally lower | Generally higher |
Age of vehicles eligible | Up to 12 years old but it depends on the lender | Usually any age but some lenders may have maximum limits |
Balloon payment option? | Yes | Yes |
Comprehensive car insurance required? | Yes, generally | No |
Are unsecured car loans more expensive?
When it comes to interest rates, unsecured car loans generally cost more than secured vehicle finance. On Money.com.au’s database, most unsecured loans start from around 6% p.a., while secured loans start from about 5% p.a.
That 1% difference might not sound like much, but stretched over a typical five-year car loan, it can make a noticeable impact on the total interest you’ll pay. For example, on a $40,000 loan, you’d pay $6,399 in interest over five years at 6% p.a., compared with $5,291 at 5% p.a. – a difference of $1,108.
Then you have to factor in fees. Establishment fees, monthly account fees and early repayment charges can all push up the total cost of your loan. It’s worth checking the comparison rate, as it will give you an indication of the fees attached.
Here’s an example from Great Southern Bank showing how interest rates differ depending on whether the loan is unsecured or secured. You’ll also see that the unsecured option can be used for vehicles of any age, whereas the secured and green car loans are limited to vehicles up to seven years old.
Don’t just look for a low rate
Phil Collard, Money.com.au Asset Finance Expert
“It’s easy to be drawn to a sharp interest rate on a car loan, but the lowest rate doesn’t always mean the best deal. Unsecured car loans often have higher rates because there’s no asset for the lender to claim if you can’t repay the loan. On top of that, some loans carry fees that add up over time. The upside? Some lenders waive establishment fees for borrowers with a squeaky-clean application, and there may be room to negotiate if you’re using a car loan broker. A big drawcard of unsecured loans is their flexibility – you can often borrow a little extra to cover costs like insurance, rego or even an at-home EV charger. Just weigh those freedoms carefully against the potential higher costs.”
Phil Collard, Money.com.au Asset Finance Expert
How much can you borrow with an unsecured car loan?
Unsecured car loans typically let you borrow anywhere from $5,000 up to around $60,000, though some lenders go higher. For instance, online lender Harmoney offers loan amounts between $2,000 and $100,000.
According to real Money.com.au customer data, the average unsecured personal loan used to buy a car is $34,827. That’s enough to comfortably cover the cost of popular models like the Hyundai i30, Mazda 3 or Toyota Corolla.
How much you can actually borrow will depend on your personal circumstances, including factors like:
- Your credit score
- Your income and living expenses
- Whether you’re trading in a car or putting down a deposit
- If you opt for a balloon payment
- The type of car you’re looking to buy
Below is an example of the borrowing limits between secured and unsecured car finance.
Unsecured car loan pros and cons
Pros
- You don’t need to offer an asset (like the car itself or your home) as security.
- With less paperwork and no asset checks, applications are often processed faster.
- Depending on the lender, you may be able to choose between fixed and variable interest rates.
- Funds can often be used for other essentials like registration, insurance or accessories.
- You can usually buy a wider range of vehicles, including older used cars that wouldn’t qualify for secured loans.
Cons
- On average, unsecured car loans have higher rates (13.78% p.a.) compared to the average secured car loan rate of 10.14% p.a., according to Money.com.au data.
- Expect more and/or higher fees – establishment, monthly and early exit fees.
- Most lenders cap unsecured loans at around $60,000 (though some exceptions exist)
- If your credit score is below average, loan approval can be harder to get.
- Repayment terms are usually lower (five years or less).
While many unsecured car loans come with a range of fees, it pays to shop around. Some lenders have no fees at all or will waive certain charges. For example, online lender MoneyMe waives its establishment fee (up to $495) for borrowers with an excellent credit score. Others may offer flexible loan terms ranging from one to seven years, no ongoing monthly or annual fees, and no early repayment penalties.
How to qualify for an unsecured car loan
Your eligibility for an unsecured car loan depends on how much you want to borrow, the car you’re buying, and your overall financial situation.
Here’s what lenders generally look for:
- You’re an Australian citizen or permanent resident and at least 18 years old.
- You have a solid credit history (though some lenders do offer bad credit car loans)
- You earn a stable income and meet the lender’s minimum employment period.
- Your bank statements show you can comfortably manage your existing expenses, including rent or mortgage repayments, bills and other debts (e.g. credit cards).
- If you’re self-employed, you’ll need to provide alternative documentation (like BAS or tax statements), as you may only qualify for a low doc car loan.
Pretty much all lenders offer instant or same-day car loan pre-approval, meaning you’ll know exactly how much you can spend before you start shopping for a car.
Applying for an unsecured car loan
As a general guide, here’s what you’ll need to do to apply for an unsecured car loan:
- Submit a loan enquiry online with your chosen lender or through a car finance broker.
- Provide your details – personal information, bank account and a valid email address – to receive a quote.
- Review the offer and if you’re happy with the interest rate, fees, terms and repayments, proceed with the full application.
- Your application will be reviewed, and if approved, the funds will be transferred to your nominated bank account.
Keep in mind that each lender has its own way of assessing loan applications, so the process and turnaround time can vary. Most lenders or brokers will contact you as soon as a decision has been made.
How to find the best unsecured car loan
Search for a low interest rate
Interest rates play a big role in the total cost of your loan. Even a small difference (like 0.75-1% p.a.) can add hundreds or thousands of dollars over the loan term. Compare car loans from multiple lenders and make sure you’re checking the interest rate range as the cheapest rates are usually reserved for borrowers with perfect credit histories.
Check the fees and charges
Fees can quietly increase the total cost of your loan. Look for lenders that keep fees to a minimum, such as application, monthly/annual, redraw or early repayment fees. Some lenders waive certain fees if you meet specific criteria (like having an excellent credit score) so it’s worth asking before you commit.
Consider the type of rate that suits your objectives
A fixed interest rate gives you certainty that your repayments will stay the same for the entire loan term, making it easier to budget. A variable rate can move up or down during the term, which means your repayments could change. Choose the option that best matches your financial goals and risk comfort.
Find a flexible loan
Flexibility can help you pay off your loan faster and save on interest. Features like the ability to make extra repayments, access a redraw facility, or repay the loan early without penalty can make a big difference. And choose the shortest loan term you can realistically afford – longer terms may lower your repayments, but you’ll pay more interest overall.
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