What Types of Car Finance are There?

When it comes to car finance, a lot of the decisions often come down to finding a comfortable balance. Whether it be between car repayments and loan length or interest rate and repayment flexibility; finding a car loan that has the right balance for you, your budget, and your lifestyle is essential when purchasing a car.

There are four types of car finance that you’ll need to choose from: variable, fixed, secured and unsecured car loans. Selecting the right type is essential in ensuring you stay in control of your loan for its duration.


The interest rate on a variable loan is dependent on the lender, meaning your interest rate may rise or fall over the course of your loan.

  • Advantages:
    1. With a fluctuating interest rate, your interest rate may decrease, allowing for smaller repayments which could save you money.
  • Disadvantages:
    1. If the interest rate increases, so will your repayments.
    2. Due to the fluctuating interest rate, these loans are harder to budget for.


By far the most common car loan product offered by lenders, the interest rate on a fixed loan is consistent for the duration of the loan, therefore your repayments will always be the same.

  • Advantages:
    1. A steady interest rate makes the loan extremely easy to budget for.
    2. The loan is very low maintenance, as you know your rate and loan repayments will not vary.
  • Disadvantages:
    1. You are locked in with your interest rate for the duration of your loan. If your lender drops their interest rate, you will not be able to partake in discounted repayments.
    2. Most fixed rate car loan products will incur early termination fees and penalties should you wish to pay the loan out early.


With a secured loan, the car you wish to purchase is used as an asset for security against the loan. This is considered a low risk loan by lenders.

  • Advantages:
    1. The interest rates offered are generally lower than those of unsecured loans.
    2. You may be able to include a residual / balloon amount in the loan term, to lower your monthly repayments.
  • Disadvantages:
    1. If you default on your repayments, the lender has the power to repossess the vehicle and sell it to pay off the loan.
    2. You cannot buy and sell vehicles from the original loan amount. If you need to sell your vehicle during the loan term, the loan will need to be paid out and you will need to get a new car loan for your next car purchase.


Unlike a secured loan, an unsecured loan does not use the vehicle you are purchasing as an asset for security against the loan. In order to qualify for an unsecured loan, you need to be able to demonstrate financial stability to the lender. This can include showing a history of savings or having previously met the repayments on a different loan or credit card.

  • Advantages:
    1. Unsecured loans tend to offer greater flexibility with regard to the terms of the loan.
    2. You don’t not run the risk of vehicle repossession should you miss repayments or default on the loan.
  • Disadvantages:
    1. Unsecured loans often come with higher interest rates than secured loans.
    2. You must meet stricter requirements to qualify for the loan.

Knowing which loan type is right for you will certainly allow you to integrate your new repayments into your life as seamlessly as possible. Whether it be a fixed or variable, secured or unsecured loan, making an informed decision should always be your highest priority.

To get an idea of which loan type would work best for you, reach out to Auto Car Loans on 1300 301 051 or contact us through our contact page to get started.


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