What is a secured loan?
A secured loan uses an asset as collateral for the funds. This means that if you don't make your repayments, the lender can repossess and sell the asset to get their money back. Offering security has several advantages, namely a lower interest rate and higher borrowing amount, as the risk for the lender is reduced compared to an unsecured personal loan. With a secured loan, the value of your asset determines how much you'll be able to borrow. You can use a secured loan for a wide range of things from cars, to weddings, to home renovations.
What assets can be used to secure a loan?
The most common collateral for a secured loan is a vehicle (new or used) and these loans are typically called car loans. Other options include the equity in your home, expensive items like fine art and high-cost jewellery or term deposits.
Pros and Cons of a Secured Loan vs an Unsecured Loan
- Lower interest rate: Because these loans are less risky for lenders, you'll usually be offered a lower interest rate than you would with an unsecured loan.
- Better chance of approval: Even if you're ineligible for an unsecured loan, you may still be eligible for a secured loan - again, because they are less risky for the lender. This could be beneficial for part-time or casual employees and bad credit borrowers.
- Higher borrowing amounts: Depending on the value of your asset, you may be able to borrow up to $100,000.
- More flexible: With the exception of car loans, you can use a secured personal loan for a variety of reasons.
- Risk to your asset:Your asset acts as the guarantee for the loan. If for some reason you are unable to make your repayments, the lender can repossess and sell your asset to get their money back.
- Borrowing amount limitations: The value of your asset determines how much you'll be able to borrow. So if you need a larger amount than what your asset is worth, you may find the loan not fit for purpose.
How to compare secured personal loans
Interest rates and fees: The interest rate is what the lender charges you for borrowing money. This is presented as a percentage per annum (per year). The lower the interest rate, the lower the cost of the loan. By comparing lenders, you can work out if the rate is competitive.
In addition to interest, you should also account for fees. This will add to the cost of your loan and can come in the form of establishment or application fees and monthly fees.
The comparison rate includes interest and fees, and is the true cost of the loan. It's presented as a percentage and displayed next to the interest rate.
Should I choose a fixed rate or a variable rate?
Loan term: This is how long you have to repay the loan. Secured loans offer terms from 1 to 7 years. Longer terms mean lower monthly repayments, but also mean that you'll end up paying more in interest charges.
Asset requirements: Before you can be approved for a secured loan, the lender will need to accept your asset. You'll be able to compare requirements before you apply. These criteria typically include the age and value of your asset.
Repayment flexibility: Check that the repayment schedule fits your lifestyle. This can be weekly, fortnightly or monthly. You may also want the ability to make extra repayments without penalty, so you can save on interest costs and pay off the loan earlier. Tip: Variable rate loans typically offer more flexibility when it comes to early repayment.
Eligibility: Lenders will take into account your personal circumstances, including your income, credit score, assets and liabilities, when you apply.
How can I apply for a secured loan?
- Work out how much you need to borrow and what you can afford. You can use a personal loan calculator to help you.
- Compare lenders and loan products. Don't forget to compare interest rates, fees, early repayment terms and eligibility criteria.
- Organise and prepare the required documentation. This will make the application process quicker. Each lender will have its own criteria and requirements, but you'll likely need to have the following documents handy:
- 100 points of ID proving your name and that you're over 18 years old.
- Proof you can pay off the loan. You may have to submit bank statements and payslips.
- Details of your address and supporting bills or documents.
- Proof of ownership of a valuable asset/property.
- Apply. Most lenders have their applications available online and the application should only take about 10-15 minutes.
Why compare personal loans with Finder?
Our personal loan comparison is completely free to use. There are no costs at all for you to use our database to find a better deal. Better still, we regularly run exclusive deals that you won't find on any other site.
We've researched and reviewed hundreds of loans as part of our Finder Awards. Our database and tables are always up-to-date and our in-house experts regularly appear on Sunrise, 7News and SBS News.
We are independently owned and have a mission to help Australians make better financial decisions. That means our opinions are our own and you can compare nearly every personal loan in Australia (and find a better deal).
Since 2014, we've helped 300,000+ people find a personal loan by explaining your options simply. You don't need to give us any details to use our comparison. We're here to help you make a decision.
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