Secured loans

When you need a personal loan, for a car, a holiday, a wedding, or any other reason, you’ll get a better deal if you can put up an asset as collateral for a secured loan. Compare some of the great secured loans on offer on this page.

By   |   Updated 24th June 2020

Comparing secured loans for $30,000.00 over 60 months

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Learn about secured loans

Find out what a secured loan, what to look out for, and how to use them.

  • FAQs

Are there any extra costs associated with a secured loan, versus an unsecured loan?

Possibly. Although you are unlikely to be charged a fee for a professional valuation of your asset if you are buying a new car and offering it as security, other types of security may need to be valued, and the lender will most likely pass on this valuation fee to be paid by the borrower.

How does the collateral, or charge against the borrower’s asset, give security to the lender?

Because the charge against the borrower’s asset gives the lender the opportunity to take possession of the asset (possibly via court proceedings) and sell it. The lender is then allowed to deduct from the sale proceeds any remaining unpaid loan principal, plus any interest owing, plus the lender’s costs for the debt recovery process. If any funds remain after all these amounts have been deducted, the balance is returned to the borrower.

In addition, the charge over your asset gives the lender some assurance that you will do whatever it takes to repay your loan rather than risk losing your asset.

How much can I borrow with a secured loan?

It will depend on four main factors:

  • Your credit score (i.e. the higher your score, the higher the amount you are likely to be able to borrow).
  • Your income (because lenders need to be able to see that you can afford the repayments).
  • The amount of any debt you already have (such as credit card debt, other personal loans or a home loan).
  • The value of the asset you can offer as security.

What are the benefits of a secured loan?

There are four main benefits:

  • Secured loan applications are more likely to be successful than unsecured loans applications, simply because the borrower sees a secured loan as less risky.
  • Secured loans tend to have lower interest rates than unsecured loans.
  • Secured loans tend to have lower fees than unsecured loans.
  • Secured loans tend to have higher available amounts and longer loan terms than unsecured loans.

What are the risks of a secured loan?

The obvious risk is the potential to lose ownership of the asset you offered as security. But while having a charge placed over your asset sounds scary, it will not be a problem provided you keep up with your loan repayments. A borrower will not try to take possession of your asset simply because you are slightly late with your repayments, although you should aim to always pay on time in order to protect your credit score.

Repossession of your asset is only likely to be the lender’s last resort if you are in serious default and have made no attempt to either repay your remaining loan amount or come to another arrangement with the lender. There are strict rules, which the lender must observe, governing outstanding loan amounts and notice periods.

But be aware that defaulting on any kind of loan will seriously damage your credit score, regardless of whether the loan is secured or unsecured.

What can a secured loan be used for?

The choice is yours. You can buy a car, a motorcycle or a boat, fund a holiday or a wedding, renovate your home, cover your education expenses or consolidate your debts. As long as you have an eligible asset to secure the loan, how you spend the loan funds is up to you.

What happens to the charge over my asset after I have fully repaid the loan?

The lender must remove the charge over your asset. You will then have unencumbered ownership of your asset.

What is a secured loan?

It’s a type of personal loan where the borrower gives a form of collateral to the lender. This means that the lender places a charge on an asset, such as a car or a house, owned by the borrower, giving the lender security that either the loan will be repaid in full, or that the principal and costs can be recovered by selling the asset if the borrower defaults on the loan.

What kind of asset can be offered as security?

The asset used as security is often the item that the borrower intends to purchase with the loan funds. This will typically be the case with a secured car loan, where the lender takes a charge over the car being purchased with the loan funds. However, the asset offered a security could be something else, such as another car, or real estate, an amount in a bank deposit account, a share investment portfolio, or, less often, a boat, jewellery or a work of art.

If you are offering a car as security, it will usually need to be less than five years old at the beginning of the loan period, and some lenders may have even stricter vehicle age limitations. You will also need to pay for comprehensive insurance on the car.

What kind of interest rates are available on a secured loan?

Both fixed and variable interest rates are available.

A fixed interest rate will not change during the loan period, so your regular repayment amount will always be the same.

A variable interest rate will usually be lower than a comparable fixed rate at the start of the loan, but it could go either up or down at any time (usually in response to a change in the Reserve Bank’s cash rate), meaning that your periodic repayment amount could increase or decrease.

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