How Does a Secured Car Loan for Veterans Work: What You Need to Know

How Does a Secured Car Loan for Veterans Work: What You Need to Know

In general, there are two types of auto loans on the market – secured and unsecured. When a borrower obtains a secured car loan, the lender places a lien on the asset that the borrower is purchasing. However, a secured loan may be secured by another asset, such as a car or a house owned by the borrower. By securing a lien on an asset, a lender can repossess it if the lender cannot collect payments as expected. Therefore, it is essential to understand the assets secured by your loan.

Veterans Affairs does not offer auto loans. However, under certain circumstances, the VA can provide financial assistance. For example, you might be eligible for a VA car loans benefit if you had a disability while serving that affected your driving ability. In this article, we will discuss how veterans can get secured loans at an affordable price and how they work.

What Is a Secured Loan?

A secured loan is a loan that is extended under certain conditions upon providing collateral for the loan. These are either business loans or personal loans. In a secured loan, the borrower pledges some assets such as a car or house as collateral for the loan to the lender.

Secured loans operate on a very simple principle. Lenders seek secured loans as an incentive to encourage borrowers to follow repayment terms by securing them with collateral.

As secured loans present a lower risk to lenders, borrowers may be eligible for lower interest rates. However, a secured loan may have a higher interest rate, such as a bad credit personal loan or a short-term installment loan.

Types of Secured Loans

There are numerous ways secured loans may be used. As an example, secured loans can be used to fund the following:

  • Auto loans
  • Loans for mortgages
  • Loans secured by shares or savings
  • Credit cards that are secured

Are VA Car Loans Secured?

Loans for vehicles are usually secured either by the vehicle you’re buying or a deposit that reduces the risk for the lender. Secured car loans have better terms and lower interest rates than unsecured car loans. Since the lender for the car loan has used the vehicle as collateral, it considers the debt to be secured.

Car loans are typically easier to obtain than credit cards or other unsecured debt because lenders use the financed vehicle to secure the loan.

Related Article: What Is the VA Automobile Allowance and Who Can Get It? 

VA Car Loans: How Can Veterans Get a Secured Auto Loan

As a result of their military service, veterans often have a negative mark on their credit scores, adversely affecting their ability to borrow secured loans for years after leaving active duty. There is much difficulty in keeping track of bills when deployed, and it is easy to miss one or two payments while serving.

Military veterans often receive special financing terms and discounts from private lenders who have a special regard for them. Many different institutions offer the military car loan program, both active duty and retired personnel. If they offer lower interest rates, require less or no money down, and are more forgiving of bad credit histories, they may be a better option for you. Veterans may find the benefits of loans even greater than those offered to active-duty military members.

Veterans who wish to receive secured loans must meet the lender’s requirements for candidates in the following categories.


If you’re considering a secured loan, it’s helpful to review your income and budget to determine what you can afford to pay each month. It’s always important to consider existing debt payments when taking on a new loan.

Credit History

Ensure you check your credit history before applying for any loan using an online service or credit card provider. After you understand your credit score, the next step is to use the information to prequalify for a loan or improve your credit score and your chances of approval.

Debt-to-Income Ratio

To qualify for a secured loan, it is essential to have a low debt-to-income ratio. A debt-to-income ratio of at or below 36% is considered good by most lenders. However, many are willing to lend to individuals with higher ratios. The maximum debt-to-income ratio for a qualified mortgage is 43%. A debt-to-income ratio of 18% or less is considered excellent.

Related Article: How Much Can You Afford to Spend on a Car?

Pros of a Secured Car Loan

Secured loans have the following advantages:

  • Secured loans often carry lower interest rates than unsecured loans, so you may be able to access lower rates.
  • Because secured loans pose less risk to the lender, it might make it easier for you to qualify.
  • Borrowers can deduct interest on certain secured loans, such as mortgages, from their taxable income.

Cons of a Secured Car Loan

The following cons are associated with secured loans:

  • As a result of defaulting on the loan, you could lose your collateral if it is repossessed or foreclosed upon
  • There is less flexibility in borrowing because the collateral often determines the permitted uses of the loan.
  • Borrowers should be aware of the risks associated with the borrowed amount from the beginning of the loan process. You might have to revoke any security you gave to the lender if you don’t repay the loan.

Where to Get a Secured Car Loan for Veterans

Generally, car loans are secured by the automobile and allow consumers to pay off their auto loans with fixed monthly installments instead of paying cash upfront. As a result, car loans are available to people who want to repay their car over time, whether they buy a new or used vehicle or refinance an existing loan.

Below is a list of some of the best auto loan companies which provide secured car loans to veterans.

PenFed Credit Union – Best Overall

PenFed Credit Union offers some of the lowest interest rates in the industry. The credit union’s members can also choose from a variety of auto loan options. Despite the requirement for membership, a drawback for some, PenFed’s conditions for joining are relatively straightforward.

LightStream – Best Online Auto Loan

A variety of vehicle loans are available from LightStream through a fully online process. There are no restrictions on what type of car it will finance, and its terms and rates are highly transparent.

Chase Auto – Best for Used Cars

As a name-brand financial institution, Chase Auto boasts competitive rates, high loan amounts, and a concierge program designed to help you get the best rates and financing options for a used car, making it easy to get the best deal on the market.

Carvana – Best for Fair Credit

Carvana also allows fair credit borrowers to shop for financing and a vehicle simultaneously while providing online financing and vehicle shopping. People with damaged credit can qualify for the program without having to meet a minimum credit score.

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