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What Is Secured Vs Unsecured Car Loan


by Mahindra Finance


June 17, 2024


4 mins read



When exploring car financing options, one fundamental decision to make is whether to opt for a secured or unsecured car loan. Understanding the differences between these secure vs unsecured car loans is crucial for making an informed decision that aligns with your financial goals and circumstances.

In this article, we will dive into how a secured vs unsecured car loan is different from each other, comparing their benefits.

What is a secured car loan?

A secured car loan is a type of auto financing that requires the borrower to provide collateral, typically the vehicle being purchased, as security against the loan. In the event of default, the lender has the right to repossess the collateral to recoup their losses. Secured car loans often come with lower interest rates and more favourable terms compared to unsecured loans because the collateral reduces the lender's risk.

What is an unsecured car loan?

An unsecured car loan is a type of auto financing that does not require collateral. Unlike secured loans, where the vehicle serves as security, unsecured car loans are not backed by any asset. Instead, lenders approve these loans based on the borrower's creditworthiness, income stability, and other factors. Because they involve higher risk for lenders, unsecured car loans typically come with higher interest rates and may have stricter eligibility criteria compared to secured loans.

Benefits of secured vs unsecured car loan

Here are the advantages of secured vs unsecured car loans to make informed decisions about financing your car purchase:

Benefits of secured car loans

  • Lower car loan interest rates: A secured car loan often has a lower car loan interest rate due to the presence of collateral. This can result in significant savings over the course of the loan tenure.
  • Accessible for varied credit histories: If you have a less-than-perfect credit history, securing a loan with collateral can increase your chances of approval.
  • Higher loan amounts: Since lenders have reduced risk with collateral as security, they may be more willing to offer higher loan amounts.
  • Longer Repayment Tenure: With secured loans, you may have the option to choose longer repayment tenures, which can help in managing your monthly budget efficiently.

Benefits of unsecured car loans

  • No collateral required: An unsecured car loan is advantageous for individuals who do not possess any assets or do not want to risk their existing assets as collateral.
  • Quick approval process: Due to lesser documentation requirements and no need for collateral appraisal, unsecured loans are often approved faster compared to secured loans.
  • Flexibility: You have the flexibility to choose the vehicle you want to purchase, as the loan isn't tied to a specific car as collateral.
  • Ideal for renters: Unsecured car loans are beneficial for individuals who don't own assets or prefer not to use them as collateral, such as renters or those with limited assets.


Choosing between a secured vs unsecured car loan depends on your individual circumstances, risk tolerance, and creditworthiness. Secured loans provide lower interest rates but require collateral, making them suitable for borrowers with varying credit histories. On the other hand, unsecured loans offer more flexibility but come with higher interest rates. When considering a car loan, it's crucial to evaluate your financial situation, credit history, and future plans, benefits of car loan before making a decision. 

At Mahindra Finance, we offer tailored car financing solutions with attractive car loan interest rates. Plus, our simple process ensures a hassle-free experience from application to approval. 


1) What is the main difference between secured vs unsecured car loan?

Secured car loans require collateral, while unsecured car loans do not. Secured loans come with lower interest rates but involve the risk of losing the collateral in case of default.

2) How does the interest rate differ between secured and unsecured car loans?

A secured car loan generally come with lower car loan interest rate, while unsecured car loans have higher interest rates due to the increased risk for lenders.

3) Can I get an unsecured car loan with no credit history?

Having a good credit history is essential for getting an unsecured car loan. However, some lenders may consider other factors like income stability and employment history for approval.

4) Is it possible to change from a secured car loan to an unsecured one?

Changing from a secured car loan to an unsecured one is uncommon. Once you have pledged collateral for a loan, it is challenging to switch to an unsecured loan without repaying the existing secured loan.

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