Alan Hartstein
Beth Buczynski 
A secured personal loan is a type of loan that uses an asset — like a car — as collateral. In general, secured loans are used if the borrower has poor credit, or cannot provide sufficient proof that they can pay off the debt. If you fail to pay back a secured loan, the bank can seize your collateral.
It’s more common for personal loans in Australia to be unsecured, meaning the bank will lend you the money without requiring an asset as backing for the loan.
How does a secured personal loan work?
Secured loans require the borrower to put up an item of value as collateral. If they can’t pay off the debt, the lender can sell the item and recoup their money. In other words, secured loans have reduced risk for the lender.
Securing a personal loan with assets
The type of asset you can use for a secured personal loan depends on the lender, the loan amount and the item’s value, but common ones include:
- Real property.
- Cars.
- Savings or term deposit accounts.
- Shares.
- Jewellery.
- Collectibles with a verifiable on-sale value.
Selling the asset is typically the lender’s last resort and missed payments will usually be accompanied by late fees, warnings and some type of financial hardship arrangement first.
Types of secured personal loans
In general, there are two types of secured personal loans; fixed-rate and variable-rate. In many cases, secured loans have a fixed rate. This means you pay the same interest rate for the length of the loan.
Although less common, you can get variable-rate secured loans. The interest on this type of loan fluctuates with the market.
Common uses for secured personal loans
Secured personal loans can be used for any purpose, such as paying for:
- Whitegoods.
- Cars.
- TVs and other electronics.
- Holidays.
- Renovations.
- Debt consolidation.
- Medical bills.
Secured personal loans may be the right choice for anyone who requires money to pay for any or a combination of the above, and who may struggle to get an unsecured loan or revolving credit due to their current financial situation.
Nerdy tip: Did you know? Some lenders offer lower rates on secured personal loans for sustainable purchases, like solar panels or electric cars.
Should I get a secured personal loan?
Before taking out a personal loan, you should be confident that you can repay the debt on time and according to the terms of your contract.
The risk of losing the asset you put up as collateral, such as your car or house, may not be worth the benefits of the loan. Check to see if you qualify for an unsecured personal loan before considering a secured option. Here are a few pros and cons, to help you determine if it’s the best type of loan for your circumstances.
How to get a secured personal loan
Meet eligibility requirements
Each lender has its own eligibility requirements, but you typically need to meet the following criteria to apply.
- be over 18 years old
- be a citizen or permanent resident of Australia
- have a reliable income
- have no record of bankruptcy
After basic eligibility requirements have been met, the lender will need to make sure that the asset can be resold easily to cover the cost of the loan.
Approval is partially based on your credit, so be sure to check your credit score, which is freely available from any of Australia’s three credit rating agencies — Experian, Equifax and Illion.
Compare loan terms and conditions
Terms and conditions vary among lenders, but the things you should be sure to compare include:
- Length of term options
- Interest rate
- Any fees, including early repayment penalties.
- Customer service record of the lender.
- Personal loan refinancing options.
As a consumer, depending on how urgently you need the money, it’s always a good idea to shop around for the best deal. If you qualify with one lender you should, in theory at least, qualify with several others.
Find the best deal
Getting pre-approval from several lenders allows you to get the best deal on things such as fees, frequency of repayments and, most importantly, interest rates. Remember, there are lenders beyond just banks.Credit unions and online lenders are all eager for your business.
Don’t feel obliged to go with the bank you’ve been with since you were a kid if you can get a better deal elsewhere. Alternatively, you can ask your current bank to match an offer you find elsewhere. This may be more difficult if you’re going down the secured loan route and have a chequered credit or employment history, but it never hurts to ask. You should always go over the terms and conditions of the loan to ensure there aren’t any hidden fees or nasty surprises, such as penalties for paying the loan out early.
Should I get a secured personal loan?
Before taking out a personal loan, you should be confident that you can repay the debt on time and according to the terms of your contract.
The risk of losing the asset you put up as collateral, such as your car or house, may not be worth the benefits of the loan. Check to see if you qualify for an unsecured personal loan before considering a secured option. Here are a few pros and cons, to help you determine if it’s the best type of loan for your circumstances.
Pros of a secured personal loan
- Fixed interest rates: Secured loans generally come with fixed interest rates so you know exactly how much your monthly or fortnightly repayments will be.
- Easy approval: The quality of your asset may mean it’s easier to acquire a secured loan than an unsecured one, and your lender may offer you a lower interest rate because your loan has collateral.
- Flexible loan amounts: Your asset, whether it be a property, car, a term deposit, or blue-chip shares, may allow you to borrow a larger amount. Although, it’s always better to err on the side of caution so you can pay off the loan and be done with it quicker.
Cons of a secured personal loan
- Risk losing the asset: Defaulting on any loan is never a good thing, but defaulting on a secured personal loan could be a double whammy because you also lose the asset you’ve put up as collateral.
- Fixed interest rates: Having a fixed interest rate may be a good thing now, given that interest rates are on the rise, but that situation could change over time.You could find yourself missing out on the savings you would get from a variable rate.
About the Author
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