9 mins read 
Key takeaways
- Most traditional auto loans are secured by the vehicle.
- Secured auto loans usually have lower rates because the lender has collateral.
- Unsecured loans don’t use the car as collateral, but they can be harder to qualify for.
- If you already have a secured auto loan, refinancing may help you lower your APR, monthly payment or total interest.
- Before choosing any loan, compare the APR, term, fees and total repayment cost — not just the monthly payment.
Most car loans are secured loans. That means the vehicle usually acts as collateral, and the lender can place a lien on the title until the loan is paid off.
An unsecured “car loan” is different. It’s usually a personal loan used to buy a car, so the vehicle isn’t tied to the loan in the same way. That can give you more flexibility, but it may also come with a higher APR or stricter approval requirements.
Here’s how secured and unsecured car loans compare, when each one may make sense, and what to know if you already have a car loan and are thinking about refinancing.
Secured vs. unsecured car loans
| Feature | Secured car loan | Unsecured car loan |
|---|---|---|
| Collateral | The car usually secures the loan | No vehicle collateral |
| Lien on title | Usually yes | Usually no |
| APR | Often lower | Often higher |
| Approval | May be easier to qualify for | May require stronger credit |
| Risk if you default | The lender may repossess the car | The lender can’t automatically take the car, but missed payments can still hurt your credit and lead to collections |
| Best for | Standard auto financing or refinancing | Flexible purchases where a traditional auto loan doesn’t fit |
Could your secured car loan work better for you?
Refinancing may help lower your monthly payment or APR if you qualify for better loan terms.
What is a secured car loan?
A secured car loan is a loan backed by collateral. With an auto loan, the collateral is usually the car itself.
That means the lender can place a lien on the vehicle title while you’re paying off the loan. You can still drive the car, but the lender has a financial interest in it until the loan is paid in full.
Because the loan is secured by the car, lenders may see it as less risky. That’s one reason secured auto loans often come with lower APRs than unsecured loans. But the trade-off is serious: if you stop making payments, the lender may be able to repossess the vehicle.
It’s also why the details in your loan agreement matter. Before signing or refinancing, it’s worth reading the fine print so you understand the rate, fees, term length and what happens if you fall behind. If you’re reviewing your current loan, watch for the kinds of terms that can hide in an auto loan contract.
What is an unsecured car loan?
An unsecured car loan is usually a personal loan used to buy a vehicle. The car itself doesn’t secure the loan, so the lender doesn’t place a lien on the title.
That can be useful in certain situations. For example, you may want more flexibility when buying from a private seller, buying an older vehicle or purchasing a car that doesn’t meet a traditional auto lender’s requirements.
But because there’s no collateral, the lender is taking on more risk. To make up for that, unsecured loans may have higher APRs, lower borrowing limits or stricter credit and income requirements.
Your credit can matter a lot here. If you’re trying to qualify for a better rate, it helps to understand how your credit profile affects your car payment and loan options. Even small credit improvements may change what lenders are willing to offer.
Which type of car loan should you choose?
For most borrowers, a secured auto loan is the more common choice. It’s built for buying or refinancing a car, and because the vehicle acts as collateral, it may come with a lower APR.
An unsecured loan may make sense if flexibility matters more than cost. For example, you may prefer no lien on the title, or you may be buying a vehicle that doesn’t qualify for a traditional auto loan. But if the unsecured loan has a higher APR, it could cost you more over time.
That’s why APR matters. The interest rate tells you part of the cost, but the APR gives you a broader view because it may include certain fees. If you’re comparing loan offers, it’s worth understanding the difference between APR and interest rate for auto loans before deciding.
What happens if you can’t make the payments?
If you fall behind on a secured auto loan, the lender may be able to repossess the car. Repossession rules vary by state and lender, but missed payments can quickly become expensive and stressful.
With an unsecured loan, the lender doesn’t have a lien on the car. That doesn’t mean there are no consequences. Missed payments can still damage your credit, trigger late fees and lead to collections or legal action.
If your car payment already feels too high, don’t wait until you’re behind. You may have options, like adjusting your budget, talking to your lender or seeing whether refinancing could lower your monthly payment. This is where it can help to look at what to do when your car payment is too high before the situation gets harder to manage.
Can you refinance a secured car loan?
Auto refinancing is usually secured by the vehicle, just like the original car loan.
When you refinance, you replace your current auto loan with a new one. The new loan may have a different APR, term length, monthly payment or lender. If you qualify for a lower APR, refinancing may help you pay less in interest. If you choose a longer term, it may lower your monthly payment, though you could pay more total interest over time.
Before you apply, it helps to compare your current loan against your potential new loan. Caribou’s auto refinance calculator can be a useful place to estimate how a different APR or term could affect your monthly payment and overall savings.
You can also look at how much you may be able to save by refinancing your car loan so you’re not just focused on the monthly payment.
Pre-qualification vs. pre-approval: why it matters
When you’re comparing refinance options, you may see terms like pre-qualification and pre-approval. They’re related, but they’re not always the same thing.
Pre-qualification is usually an early estimate based on basic information. Pre-approval may involve a more detailed review, though final approval still depends on the lender’s requirements and verification.
That distinction matters because a refinance offer isn’t final until the lender confirms your information, vehicle details and loan terms. If you’re comparing options, it’s helpful to understand the difference between auto refinance pre-approval and pre-qualification before you rely on an estimated offer.
Pros and cons of secured vs. unsecured car loans
| Loan type | Pros | Cons |
|---|---|---|
| Secured car loan | Often lower APR; easier to compare; built for vehicle purchases and refinancing | The lender can usually repossess the car if you default; vehicle age, mileage, title and insurance rules may apply |
| Unsecured car loan | No lien on the vehicle; more flexible for private-party purchases, older cars or vehicles that don’t meet auto loan requirements | May have a higher APR; can be harder to qualify for; loan amounts may be smaller |
Bottom line
Most car loans are secured, which means the vehicle acts as collateral. That can help keep rates lower, but it also means the lender may be able to repossess the car if you stop making payments.
Unsecured loans can offer more flexibility, but they may come with higher APRs or stricter qualification requirements. Before choosing one, compare the APR, monthly payment, term length, fees and total cost.
And if you already have a secured auto loan, the bigger question may not be whether your loan is secured or unsecured. It may be whether your current loan still fits your budget. Refinancing could help if you qualify for a better rate, a lower monthly payment or loan terms that work better for where you are now.
FAQs: Secured vs unsecured car loans
Are most car loans secured or unsecured?
Most traditional car loans are secured. The vehicle usually acts as collateral, and the lender may place a lien on the title until the loan is paid off.
Can I buy a car with an unsecured loan?
Yes. You can use an unsecured personal loan to buy a car, but it’s different from a traditional auto loan. The vehicle usually won’t be tied to the loan, but the APR may be higher and approval may depend more on your credit and income.
Is a secured car loan better than an unsecured car loan?
A secured car loan may be better if you want a lower APR and standard vehicle financing. An unsecured loan may be better if you want more flexibility and can qualify for a competitive rate.
Can a lender take my car if I have an unsecured loan?
Not automatically, because the car doesn’t secure the loan. But missed payments can still hurt your credit and may lead to collections or legal action.
Is auto refinancing secured or unsecured?
Auto refinancing is usually secured by the vehicle. The new lender typically pays off your old loan and places a new lien on the car until the refinanced loan is paid off.
Does a secured car loan hurt your credit?
A secured car loan can affect your credit like other installment loans. On-time payments may help your credit over time, while missed payments can hurt it.
Should I refinance if my secured car loan has a high APR?
It may be worth checking your options. If your credit has improved, rates have changed or your current payment no longer works for your budget, refinancing could help. Just compare the new APR, term, fees and total loan cost before deciding.
