How Secured Auto Loans Work

A secured auto loan is really a loan that utilizes the vehicle you're purchasing as collateral for the loan. To get this done, the lending company could keep the car title as a guarantee for repayment if you cannot pay the loan back.

Secured auto loans usually have terms up to 84 months — longer than most unsecured auto loans. As the process of obtaining a secured auto loan is comparable to the entire process of getting an unsecured loan, you should think about the benefits and drawbacks.

What a secured car loan is and just how it works

Secured automotive loans are the most typical kind of auto loan. There are a number of possibilities, and they are usually the simplest type of auto loan to understand. But not every lender that you come across will offer you secured loans and even lenders which do hold varying guidelines.

When you are taking out a secured car loan, you use a specific asset — the car you are purchasing — as collateral for that loan. As stated, this means that the lending company will keep the car title like a guarantee for repayment if you fail to spend the money for loan back.

Benefits of secured auto loans

Secured loans can be a sensible choice if you are looking for a lower rate of interest, a longer loan term in order to finance a far more expensive vehicle, particularly if you intend to keep the car for some time.

Longer loan terms

Secured automotive loans will often have terms up to 84 months, which is considerably longer than most short term loans — auto or else. While an extended loan term means you'll pay more in interest over the lifetime of the loan, it may be worthwhile if you think that you may be capable of making extra payments in the future or you require the lower monthly payment.

Easier to qualify

Another benefit of getting a secured loan is that it is simpler to qualify. The lender will appear at your credit rating, income and debt-to-income ratio. But when you don’t have great credit, a secured loan could be a good option because the lender isn’t taking as big of a risk when it has collateral.

Lower interest rates

Secured loans are typically offered lower interest rates than unsecured or personal loans. Again, should you don’t have the best credit, this is often an especially helpful advantage when looking for a brand new car.

How to obtain a secured auto loan

The process of obtaining a secured auto loan is comparable to those of getting a personal unsecured loan. You’ll need to go via a lender or financial institution and submit an application.

Following that, you'll have to provide information much like your current employment history, income, residence and then any debts and savings you have. Additionally you should prepare for the lender to operate a report to get your credit rating.

Be sure to also provide your most recent pay stub, personal and vehicle information, bank statements and evidence of residence with you. It's a wise decision to calculate your expected rate of interest and payment per month ahead of time by taking advantage of an auto loan calculator.

If approved, you'll sign a loan agreement and also the lender will begin sending you monthly statements. Prepare to begin making your monthly within the first month. And when you can, set up autopay to make sure your vehicle payment is always paid on time.

What to consider with secured auto loans

Secured loans can be a good option if you don’t have sufficiently strong credit to be eligible for a a conventional loan. They are helpful for drivers with a low loan amount seeking a low-interest rate as well as for individuals with better credit who want to pay a little more and get a much better rate of interest.

But these financing options come with limitations, including a restricted choice of vehicles to choose from. If you are looking for any specific vehicle, like a luxury car or electric model, you might not find it provided with a secured loan. Also, you may want to pay more upfront to make the rate of interest around the loan competitive.

If you can’t discover the exact vehicle you are searching for having a secured loan, it’s worth exploring unsecured automotive loans. These typically have lower interest rates, higher limits and more flexibility, including the choice to finance 100 percent from the car’s value.

The bottom line

Understanding the basics of secured automotive loans will help you create a smarter choice when financing the next vehicle. With respect to the state you reside in, collateral might also be a worthwhile option when trying to get an auto loan. Take time to compare different lenders to make sure you drive away all with the best deal.

Learn more

  • How to find the best car loan
  • Build credit prior to getting a car
  • Current car loan rates


  • Exactly what a secured auto loan is and just how it really works
  • Advantages of secured automotive loans
  • How to get a secured auto loan
  • What to consider with secured automotive loans
  • The bottom line

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