Is a car loan secured or unsecured?
Alisa Dan
A car loan can be secured or unsecured, and the difference shapes what happens if something goes wrong.
Most UK car finance agreements that people take through dealerships are secured on the vehicle.
Imagine someone collecting a used Ford Fiesta from a dealer. They drive away thinking the car is “theirs”, but the finance agreement still gives the lender certain rights. Meanwhile, someone else buys the same car with a personal loan from their bank and holds full ownership from day one. Both borrowed money for a car. But their legal positions couldn’t be more different.
A secured car loan ties the debt to the vehicle. And that means the lender can claim the car if the borrower stops paying.
An unsecured car loan sits on the borrower, not the car. The debt still exists, but the lender has no automatic right to take the vehicle.
And the type of loan affects everything that follows — ownership, risk, interest rates, and how lenders treat missed payments.
But plenty of drivers fund their car with an unsecured personal loan from a bank.
What is a secured car loan?
A secured car loan is a loan that uses the car as collateral, giving the lender legal rights over the vehicle until the debt is settled.
The core idea is simple. A secured loan links the borrowing to a specific asset. In this case, the secured car loan places the vehicle itself as collateral, meaning the lender can reclaim and sell it if the borrower stops paying. That link changes the entire structure of the agreement. Ownership is conditional. Repayments protect the borrower and the lender. And enforcement becomes clearer because the asset is identifiable.
Meanwhile, the borrower benefits from predictable repayments supported by the security behind the agreement.
And lenders usually price secured loans with more confidence because the risk is partly absorbed by the vehicle’s value.
A secured car loan always answers one question: what backs the debt?
What is an unsecured car loan?
An unsecured car loan is borrowing that isn’t tied to the vehicle, so the lender has no automatic right to take the car if repayments stop.
An unsecured car loan is simply a loan used to fund a car purchase. The car isn’t listed as collateral, and the agreement contains no security clause or charge over the vehicle. The lender relies on the borrower’s credit profile, income stability and repayment history rather than the car’s value. Meanwhile, the borrower gets full ownership without any finance marker on the vehicle.
But the freedom comes with different pressures. Because there’s no asset guaranteeing the loan, lenders often charge higher interest, shorten repayment terms and tighten affordability criteria. And while the lender can’t automatically seize the car, the borrower is still fully liable for the debt. Missed payments can trigger collection action, damage credit standing and make future borrowing harder.
Unsecured car loans work best when someone wants clean ownership and has a strong enough credit record to secure fair terms. The loan follows the person — not the car.
Are UK car finance products secured or unsecured in practice?
Most UK car finance products are secured on the vehicle, but some routes (mainly personal loans) remain fully unsecured.
A driver might assume all finance works the same because the monthly payments look similar. But the legal structure changes depending on the product. And that structure decides who owns the car, who carries the risk and what happens if payments fall behind.
Hire Purchase, PCP and most dealer-arranged finance agreements behave as secured car loans in practice. Meanwhile, bank loans and online personal loans act as unsecured borrowing even when used to buy exactly the same car.
How your profile affects secured vs unsecured offers
Your profile drives whether lenders offer secured or unsecured options, and it shapes the rate, term and flexibility you receive.
Two people can finance the same £10,000 car and still get very different agreements because lenders judge risk, not the vehicle. Strong credit signals often open the door to unsecured borrowing, where the lender trusts the borrower without relying on the asset. And when credit history looks weaker, lenders shift toward secured car loans because the car acts as collateral, reducing their exposure.
Income and affordability checks reinforce that split. A steady, predictable income makes unsecured offers more realistic, while tighter budgets push lenders toward secured structures. Meanwhile, APR differences follow the same logic: unsecured lending relies entirely on your profile, secured lending shares risk with the vehicle.
How to check if your own car loan is secured or unsecured
You can confirm whether your car loan is secured or unsecured by checking who holds rights over the vehicle and how your agreement describes the debt.
Many drivers assume they already know the answer, then discover the lender still has a claim on the car. And that’s why a quick check matters: asecured car loan uses the car as collateral, while an unsecured loan leaves the vehicle free of any finance charge.
The clearest signal sits in the credit agreement. Wording such as “security interest”, “bill of sale”, “lender retains title”, “fixed charge over the vehicle” almost always indicates a secured structure. And if the agreement describes the lender as the vehicle’s legal owner until settlement, the loan is secured by definition.
Your V5C offers another clue. Being the “registered keeper” does not prove ownership. If your finance is secured, the lender still owns the car even though your name appears on the logbook. And a quick HPI-style check will show whether a finance marker is registered against the vehicle.
A final step is simple: ask the lender. Every regulated lender must confirm whether your loan is secured on the car or not. And they can explain the implications if you ever settle early, refinance or fall behind on payments.
Secured vs unsecured car loans: Quick comparison
| Feature | Secured Car Loan | Unsecured Car Loan / Personal Loan |
| What backs the loan? | The car acts as collateral and the lender holds rights over it. | No asset backs the loan; the debt sits entirely with the borrower. |
| Who owns the car during the agreement? | The lender is the legal owner until settlement; you’re the keeper. | You own the car outright from day one. |
| Risk if payments stop | The lender can repossess the car after missed payments. | No automatic claim on the vehicle, but the lender can still pursue the debt. |
| Credit profile impact | More accessible if credit history is weaker; the car reduces lender risk. | Requires stronger credit score and stable history. |
| Typical APR | Often lower because the lender shares risk with the asset. | Often higher because the lender relies only on your profile. |
| Loan amount & terms | Can support larger amounts and longer terms due to security. | Usually shorter terms and tighter affordability checks. |
| Where it’s used | Dealer finance, HP, PCP, secured motor finance. | Bank loans, online personal loans, private-purchase funding. |
| Finance marker on the car | Yes — appears on HPI/vehicle checks. | No — the vehicle is free of finance markers. |
| Best suited for | Borrowers wanting structured payments or rebuilding credit. | Borrowers wanting instant ownership and clean vehicle title. |
Carboom is here to help you get a car finance loan
Carboom helps you secure a car finance loan by matching you with HP or PCP agreements that work for your budget and credit profile.
Secured finance gives lenders confidence because the car acts as collateral, and that opens doors for many drivers. Carboom uses your details and your credit history to find lenders willing to support you, even if your score isn’t perfect.
You stay in control of the payments.
We handle the search, the paperwork and the lender communication, so you know exactly what you're agreeing to before you drive away.