How secured auto loans work

Secured auto loans are the most popular financing choice for vehicle buyers. These loans typically provide larger amounts and lower interest rates than unsecured auto loans. Usually, a secured auto loan requires the vehicle you're purchasing as collateral, making it the most common type of car loan available. Banks, credit unions, online lenders, and dealerships all primarily offer secured car loans, which helps maintain competitive rates and lowers the lender's risk.

Although this could mean the borrower's car could be repossessed if they can't repay it, secured car loans are usually the best option for most borrowers. They come with competitive rates, terms of up to 96 months, and a relatively fast application process. While unsecured loans have benefits, borrowers might find it easier to qualify for a secured car loan.

Secured auto loans are offered by a wide range of lenders that cater to borrowers with varying credit histories. Although some requirements may differ by lender, secured auto loans are generally more accessible and easier to qualify for. When taking out a secured auto loan, you're borrowing money and adding the car you're purchasing as collateral.

The lender keeps the car title until you finish paying off the loan. If you fail to repay, the lender can take your vehicle and sell it to recover their loss. This is why lenders often offer competitive rates and work with borrowers who have poor credit. Secured loans can be an excellent choice if you're seeking a lower auto loan interest rate or want to finance a more expensive vehicle.

Lenders can finance 110% to 125% of the vehicle's value when you take out a secured auto loan, allowing you to add extras like gap insurance or an extended warranty without paying extra. The loan amount is capped based on factors such as your income and other debts, but you can often secure a loan to cover the cost of a higher-priced vehicle.

Unsecured auto loans are essentially personal loans used to buy cars, with maximums ranging from $25,000 to $50,000. However, finding an unsecured loan that can cover high costs, such as those for expensive new vehicles, can be challenging. A secured loan is generally easier to qualify for because the lender considers the value of the vehicle you want to buy, your credit score, income, and debt-to-income ratio.

If you don't have great credit, a secured loan can be a good option, as the lender isn't taking as big of a risk with collateral. Secured auto loans tend to have lower interest rates than unsecured loans. In the second quarter of 2026, the average interest rate for a new secured car loan was 6.35%, while for used car loans, it was 11.19%.

In contrast, the average rate for an unsecured personal loan is 12.44%. For new cars, secured loans generally provide a more competitive rate. While secured auto loans are the standard choice, they may not be the best option for every borrower. Secured auto loans can only be used for expenses related to the vehicle, while unsecured personal loans can be used for almost anything, including multiple expenses at once.

Unsecured loans also often have fewer mileage and age limits for used cars. However, drivers with secured auto loans are more likely to have their vehicles repossessed if they default. In summary, most borrowers opt for a secured auto loan, as it is generally the best choice for securing a lower interest rate and financing a more expensive vehicle. Be sure to compare different lenders to find the best deal.