There are two different types of car loans for personal use, which are secured car loans and unsecured car loans.
Not every car loan provider will make available unsecured car loans, but they can also often be referred to as unsecured personal loans, which are sold as normal loans, not specific to cars.
Below is an explanation of both types of personal use car loans:-
Unsecured Car Loan
As mentioned, often referred to as a personal loan, this type of loan does not use the vehicle as security, which would mean if the loan was in default, the lender has no legal right to repossess your vehicle, they would have to seek legal action to recover their costs.
Due to this type of personal loan being a higher risk, the interest rates are usually much higher than a secured car loan.
There may be options to have fixed or variable interest rates, but a lot of unsecured car loans do attract variable interest rates, meaning that your interest rate and repayments may change throughout the term of the loan, but may have more flexible options, such as early payout without penalty, or redraw on the loan.
Secured Car Loan
This would be where the lender takes a financial interest over the car you are purchasing as security.
What this means is that if you defaulted on your loan, the lender may have legal right to repossess that car to sell it to recover its funds.
Due to the lender having some form of security makes this loan type less risky to the car loan provider and will usually result in discounted interest rates.
You may have the options to have fixed or variable interest rates, but most secured car loans come with a fixed interest rate, which means your interest rate and repayments will stay the same for the full term of your loan.
A fixed rate secured car loan would usually still allow you to pay your car loan out early and make additional repayments, but could attract break costs and/or early termination fees. Secured car loans won’t usually have a redraw facility.