Is Car Loan Secured or Unsecured?

"Learn whether the car loan is secured or unsecured so that you can make the best choice for you and apply for a car loan online with My Mudra."

Is car loan secured or unsecured

4 mins read

Published: 22 November 2023

Updated: 22 November 2023

The article will clear any doubt that may have arisen in your mind about a car loan secured or unsecured. The article will give you complete and detailed information on car loans, how to apply car loan, and will answer all the doubts associated with car loans. A car loan commonly called an auto loan is the one that is taken by the borrower to purchase vehicles. If you are considering taking a car and have less money in your pocket then it is wiser to take a car loan online. A car loan will not create any hole in your pocket and you can drive your dream car to your home.

It is common that when you visit a car showroom to purchase a car there might be many representatives of different lenders who are offering you financial aid. But the best financial aid is the one that matches your needs and is designed as per your terms and conditions. A car loan or auto loan is a secured loan because the car that you are purchasing is itself collateral to the bank. The interest rate for the car loan starts from 8.5% P.A. The article below will boost your understanding of the car loan.

Secured Car Loan

Secured car loans are the more traditional form of auto financing that involves low risks. They are secured by the vehicle itself, which means that if the borrower defaults on the loan, the lender can repossess the car to recover their losses. Here are some key points to consider when it comes to secured car loans:

1. Collateral: The car being financed serves as collateral, providing a level of security for the lender. This collateral minimizes the risk for the lender and typically results in lower interest rates for the borrower.

2. Interest Rates: Due to the reduced risk, secured car loans often come with lower interest rates, making them an attractive choice for borrowers looking for cost-effective financing options.

3. Eligibility: Secured car loans are more accessible to a wider range of borrowers, including those with less-than-perfect credit, as the collateral offers added assurance to the lender.

4. Terms: The terms of a secured car loan can vary but are typically longer than those of unsecured loans, allowing for lower monthly payments and greater flexibility in budgeting.

5. Risks: The primary risk for borrowers is the potential loss of the vehicle if they fail to make payments. Additionally, borrowers might end up owing more than the car's value if the loan term is extended.

Unsecured Car Loans

Unsecured car loans, on the other hand, do not require the borrower to put up the vehicle as collateral. These loans are not as common in the automotive financing industry, but car loans do offer certain advantages to specific types of borrowers. Here's what you need to know about unsecured car loans:

1. No Collateral: Unsecured car loans are not backed by the vehicle, making them riskier for lenders. To compensate for this added risk, they typically come with higher interest rates compared to secured loans.

2. Creditworthiness: Lenders rely heavily on the borrower's creditworthiness to approve unsecured car loans. This means that individuals with good credit scores are more likely to secure these loans.

3. Terms: Unsecured car loans tend to have shorter terms, often resulting in higher monthly payments. This can be a disadvantage for borrowers looking for more extended repayment options.

4. Risk: The primary risk for borrowers is the potential impact on their credit score in case of default. Lenders may resort to legal action or debt collection efforts, but they cannot repossess the vehicle as there is no collateral involved.

Choosing the Right Loan Type

The choice between a secured and unsecured car loan ultimately depends on your financial situation and goals. Here are some factors to consider when making your decision:

1. Credit Score: If you have a good credit score, you might qualify for an unsecured loan with a competitive interest rate. However, if your credit is less than ideal, a secured loan may be a more accessible option.

2. Budget: Your monthly budget and your ability to make higher payments should also play a significant role in your decision. Secured loans typically offer longer terms and lower monthly payments, while unsecured loans may require larger monthly installments.

3. Risk Tolerance: Consider how comfortable you are with the idea of your car being used as collateral. Secured loans offer lower interest rates but carry the risk of repossession.


In the world of car financing, it's essential to understand the difference between secured and unsecured car loans. While secured loans provide lower interest rates and broader accessibility, unsecured loans cater to borrowers with excellent credit but come with higher interest rates and shorter terms. Your choice should align with your financial circumstances, creditworthiness, and risk tolerance, ensuring that your auto financing solution is tailored to your specific needs and objectives. Careful consideration of these factors will empower you to make a well-informed decision when seeking to finance your next vehicle. The article provides you with a perfect solution if you are looking for a vehicle loan. Finance your vehicle from My Mudra, one of the top fintech companies in India, and release the financial stress. We have been tied up with 50+ Banks and NBFCs for secured and unsecured car loans. Leave your worry on us and enjoy your ride.

Also read: How to Apply for a Car Loan?

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