Secured Personal Loans
By offering an asset as collateral, you could get a loan of up to $100,000 with lower interest rates and longer repayment terms.
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What is a secured personal loan?
You have two options for personal loans: a secured personal loan or an unsecured personal loan.
A secured personal loan requires an asset as security. You could use an asset that you currently own, or one that you will buy with the loan, as a guarantee for the loan. The asset acts as security or collateral.
With an unsecured personal loan, you could borrow money without an asset as security.
The most common type of secured personal loan is a car loan. With car loans, you secure the loan with the vehicle you are buying.
You can take out a secured personal loan for other purposes, too. This includes paying for holidays, weddings, home improvement or renovations. The key is that your asset or security has to be greater or equal to the value of the loan.
Secured personal loans are generally cheaper than unsecured personal loans. They usually feature lower interest rates and lower or fewer fees.
With a secured personal loan, you can borrow up to $100,000, sometimes more, with a repayment window of up to 7 years.
How does a secured personal loan work?
Offering an asset as security reduces the risk of lending. As the risk is lower, lenders are able to offer lower interest rates and lower or fewer fees. While these loans are cheaper, you could risk losing your asset if you do not make your repayments.
With a secured personal loan, the value of your asset determines how much you can borrow. Your asset has to be more than or equal to the loan amount you wish to take out. Lenders will also have requirements for the asset, such as its age or value.
What are the benefits and drawbacks of a secured personal loan?
As with every loan, there are benefits and drawbacks to consider.
✔️ Lower interest rate. These loans are less risky for lenders. This enables lenders to offer lower interest rates.
✔️ Flexible. With the exception of car loans, you can use a secured personal loan for a variety of uses. The amount should not exceed the value of your secured asset.
✔️ Better chance of approval. You may be eligible for a personal secured loan even if you were not eligible for other loans. This means that you could still apply even if your credit score is not perfect. This is because offering an asset as security makes the loan less risky
❌ Risk to your asset. Your asset acts as the guarantee for the loan. While securing it gives you lower interest rates, you could also lose your asset if you fail to pay your loan.
❌ Loan amount limited to value of asset. How much you can borrow depends on the value of your asset. You should make sure your asset is worth the amount you require.
What can I use as security?
Some of the most common forms of security are vehicles or home equity. Depending on the lender, you can also use other assets to secure the loan. You can use the following assets as security for your loan:
- New car. If you're buying a new car, or if you have a car that is less than two years old, you can use it as a guarantee on your secured loan. There are also secured motorbike and caravan loans.
- Used car. If you want a loan for other purposes, you can also use your used vehicle as security. Lenders may also allow other types of vehicles, like motorbikes or caravans. Your vehicle will need to be less than 7 years old, although some lenders will accept cars up to 10 years old. Your vehicle may also have to meet certain requirements. For instance, your car must never have been extensively damaged or written off.
- Home equity. If you own a mortgaged property, you can take a loan against any equity you have in the property. Common uses for home equity loans are home renovations. Find out if a home equity loan is right for you.
- High-cost assets. Some lenders may also allow you to use other assets. You could use expensive jewellery, fine art, precious metals, prestige cars or even some antiques.
- Term deposits. If you have money locked away in a term deposit, some banks and credit unions will allow you to use it as security. You can borrow up to the amount available in your term deposit. You may also need to have more than a specified amount for your term deposit to be eligible.
How does a personal loan work when you secure it with equity?
A loan secured against your home works in the same way as other secured personal loans. When you apply you will need to provide details of your mortgage, your personal financial position and the reason you're taking out the loan. Your application will be assessed and if approved, you will be given a loan based on how much equity you hold and how much the lender thinks you can afford to repay.
Working out your equity
Home equity is essentially the difference between your property's value and any debt you hold against it. Typically, you'll be able to borrow up to 80% of your home's value minus the debt you hold against it. For example, if your home is worth $500,000 and you've paid off $300,000, you'll have $200,000 left on your mortgage. Here's how much you'll be able to borrow on a personal loan in that scenario:
- 80% of a $500,000 home = $400,000
- The amount of debt on the property = $200,000
- Value - debt = $200,000
What are my secured personal loan options?
You have several options when it comes to secured personal loans. Depending on the asset you wish to use as security, you can apply for a:
- Car loan. You can use a secured car loan to buy a new or used car. Most banks and credit unions offer car loans. You may also be able to get one from a dealership or a standalone car loan lender. The rates between lenders can differ. With dealership finance, rates can be as low as 2%. This is because you may have to make a balloon payment at the end of the term. With a traditional bank, it can vary from 6 - 14%.
- Home equity loan. With a home equity loan, you can use the equity on your mortgage as security. You can use the funds to renovate, invest in property, go on a holiday or buy a new car. You could also qualify for a personal line of credit, which you can draw on continually based on your equity. This can be a flexible way to access funds.
- Term deposit security loan. If you hold a term deposit with a bank or credit union, you could take out a term deposit security loan. Your term deposit will be your security. You will be able to borrow as much as you hold in your term deposit.
- Personal asset secured loan. Some lenders accept high-priced assets. These can include boats, motorbikes, jewellery and art. Your item or collection of items will be valued and then used as security. Most major banks do not offer these types of loans, but there are many registered non-bank lenders who offer them.
What can I use a secured personal loan for?
There are a multitude of options for what you can use your unsecured personal loan for:
Can I get a secured personal loan if I'm on Centrelink?
While getting a personal loan if you're on Centrelink payments can be trickier, it's certainly not impossible, particularly if Centrelink payments make up less than half of your income and if you are able to offer asset security.
Find out more about getting a loan on Centrelink payments in our guide.
Is a secured personal loan the best option for me?
Before you apply for any financial product, you need to know if it is right for you. Secured personal loans come with a lot of benefits, but they are not for everyone. A secured personal loan's suitability depends on your personal circumstances and needs. To decide if it is the right type of loan, you need to ask yourself the following:
- What kind of a loan do I want?
Secured personal loans are generally cheaper than unsecured personal loans. Providing the lender an asset as security reduces the lender's risk and the cost of the loan. If your priority is a loan with a competitive rate, a secured personal loan will always cost less.
- Am I a bad credit borrower?
If you don't have a perfect credit score, getting an unsecured personal loan may be difficult. Your other options, like payday loans, are also very expensive. But you may be able to get a secured personal loan if you have an asset to offer as collateral. With an asset as security, the lender faces less risk. As a result, they may have fewer restrictions and could be open to lending to bad credit borrowers. Making your repayments on time can also help improve your credit score.
- Am I a part-time or casual employee? Am I self-employed?
If you're a part-time or casual employee, or if you are self-employed, getting a personal unsecured loan may be more difficult. This is because lenders take into account whether you have a steady income. For lenders, this is a sign of your ability to repay the loan. If you have an asset to offer as security, you could take out a secured personal loan instead. Your asset reduces the lender's risk and increases your chance of getting a loan.
- Do I need or have an asset?
Are you looking to buy an asset with the loan funds? Do you already have an asset of value? If you don't want to buy an asset or if you don't own one, a secured loan may not work for you. If you are looking to buy an asset, you should make sure your lender accepts it as collateral.
- Am I able to take the risk?
Do your circumstances allow you to take the risk of a secured personal loan? Are you certain you can make your repayments? In case your financial situation changes, are you willing to give up your asset? Asking yourself these questions can help you determine if this is the right loan for you.
- Does my asset meet the lender's requirements?
Lenders will have requirements for the guaranteed asset. This can include its age and value. Cars, for instance, need to be under a certain age, usually from two to seven years. To use your term deposit as collateral, you may need to have a set amount in the account.
Can I get a secured personal loan if I'm on Centrelink?
It may be tricky getting a personal loan while you're receiving payments from Centrelink. But it is not impossible. Most lenders look into whether your Centrelink payments make up less than half your income. Your chances improve if you are able to offer an asset as security.
Find out more about getting a loan on Centrelink payments in our guide.
Are secured loans better than unsecured loans?
Are you wondering how secured personal loans compare against unsecured loans? Its suitability will depend on your circumstances. You should also take into account what you need the loan for and your financial position. We've compared the two below.
| Secured loans | Unsecured loans | |
| Interest rates | ✔️ Interest rates are lower compared to unsecured personal loans, making these loans cheaper. | ❌ Interest rates are higher compared to secured personal loans. This means that unsecured personal loans work out to be more expensive. |
| Loan amounts | ✔️ Depending on the lender, loan amounts of up to $2,000,000 can be available. You can borrow up to the value of your security. | ❌You may be able to borrow up to $100,000, based on your credit rating and income. |
| Loan features | ✔️ May have more flexible loan features, such as redraw facilities. | ❌ Some unsecured loans charge fees for redraw facilities. |
| Accessibility | ✔️ Greater accessibility for self-employed, part-time or casual employees, and bad-credit borrowers | ❌ May not be available for self-employed, part-time or casual employees and bad-credit borrowers. |
| Risk | ❌ There is a risk of repossession of assets if you fail to repay your loan | ✔️ Your assets are not at risk with an unsecured personal loan. |
| Loan use | ❌ Your use of the funds may come with restrictions. If you take out a loan for a car, you can only use it to buy a car. You will also have to use your purchase as security. | ✔️ There are fewer restrictions on how you can use the loan, making this loan type more flexible. For example, you can use it to pay for a single expense, such as a medical bill. Or for various expenses such as renovating your home, and buying new furniture or appliances. |
| Application process | ❌ You will need to show proof of your asset ownership, or have it validated by a third-party. This can slow down your application process. | ✔️ Faster, more straightforward application process. This is because you do not need to show proof of assets. |
| Asset requirements | ❌ If you're not using the loan to buy an asset, then you need to already own an asset of value. | ✔️ You do not need to own an asset. |
| Approval | ✔️ Offering an asset as security increases your chances of approval. This is because your asset offsets the lender's risk. | ❌ As you do not have an asset as security, these loans are more risky for the lender. Lenders are less flexible about individual circumstances as a result. |
How can I compare secured personal loans?
There are a few things to look out for while comparing secured personal loans. You should keep in mind the following when making your decision:
- Comparison rate. The comparison rate is the true cost of the loan. This is displayed as a percentage. It includes the interest rate and other fees and charges that come with the loan. The comparison rate is often higher than the interest rate and is how much you will actually pay for the loan.
- Interest rate. How competitive is the interest rate offered by your lender? By comparing between lenders, you can work out if the rate is competitive.
- Loan terms. Secured personal loan terms range from one to seven years. Do the terms meet your needs?
- Asset requirements. Before you apply for the loan, you need to check if your asset meets the lender's requirements. This can be the age of your car, the value of your jewellery, or how much you currently have in your term deposit.
- Loan amounts. What are the loan amounts offered by the lender, and are your needs covered by it?
- Repayment flexibility. Are you able to repay the loan early without penalty? Can you make additional repayments without being charged?
How do I compare lenders?
You can get a secured personal loan from a range of lenders. This includes traditional banks and alternative lenders. There are also different types of alternative lenders. This may sound confusing, but there are two main types of alternative lenders.
The first are known as "mutuals", which are customer owned. Building societies and credit unions fall into this category.
The second category are "online lenders" and include neobanks, peer-to-peer and independent lenders.
We've compared big banks, mutuals and online lenders to make it easier for you to decide.
Big banks | Mutuals | Online lenders |
|---|---|---|
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What should I consider before applying?
Before applying for any loan, there are a few things you need to consider:
- How much will the loan cost? It is not enough to compare the interest rates. You need to also take into account the comparison rate, which is how much your loan will actually cost.
- Does it fit my budget? After you calculate the cost of the loan, you need to ask yourself if you can afford it. How does it fit in with your current budget?
- Can I repay my loan? Once you've calculated its cost and affordability, ask yourself if you can repay the loan. If you fail to make your repayments, the lender can repossess your asset to cover the cost of the loan.
- Will I be paying more if I take a loan with long terms? Secured loans have a longer repayment window. You need to calculate how much you will be paying if you take out a loan with a long repayment period. Ask yourself if you will be better off with shorter repayment terms.
How can I apply for a secured personal loan?
Once you've decided to take out a personal loan, you can start comparing loan options on Finder. Once you've found a loan that suits your circumstances and needs, click "Go to site" on your selected lender. You can then begin your application process. The eligibility criteria for a secured personal loan varies from lender to lender. Please check the lender's specific criteria before applying.
You could speed up the process if you keep the following documents on hand:
- 100 points of ID proving your name and that you're over 18 years old.
- Proof you can pay off the loan. To prove this, 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.
Worst case scenarios
What happens if I default on a secured loan?
You can risk your asset if you default on your secured personal loan. You may be able to prevent this if you act quickly.
⚠️ If you receive a notice of default from your lender, contact the lender for free legal advice.
⚠️ If you are facing financial difficulties, you should speak to your lender. You may be able to come to a new and more manageable repayment schedule with your provider.
When can a lender repossess by asset?
⚠️ Without written permission from you or a court order, no credit provider can visit your property to repossess your assets. A lender can only repossess your asset if all of the following take place:
- You're behind on payments.
- They've sent you a notice asking you to repay the amount within 30 days.
- Those 30 days have passed and you still haven't paid, arranged to pay or asked to postpone repossession.
⚠️ The lender cannot repossess your assets without a court order if:
- You owe less than $10,000.
- You owe less than 25% of the loan. This depends on whichever amount is lower.
⚠️ Additionally, in the case of a secured vehicle, the lender cannot repossess it if it is on your property. But it can be repossessed if it is parked on the street.
What do I do if my lender repossesses my asset?
⚠️ You may still have some time even if your asset has been repossessed. Your lender must provide the following within 14 days of repossession:
- The asset's estimated value.
- Charges for repossession and any ongoing costs.
- A statement of your rights under consumer credit law.
⚠️ The lender cannot sell your asset for 21 days after you have provided this notice. During this three-week period, you could:
- Get your asset back if you pay the overdue amount, including costs. You could also do this by paying the full amount owed.
- Find a buyer for your asset for at least the estimated value. You may choose to do this to ensure the asset is sold for the best price possible. You could also do this if you have a relative or friend willing to purchase the asset on your behalf. To do this, you must provide the details of the buyer to your credit provider in writing.
⚠️ If your asset has been sold after the three-week period, your credit provider must provide you with:
- The value the item was sold for.
- The costs of repossession and sale.
- Your outstanding balance, if any.
⚠️ If you have an outstanding balance, you must pay it immediately or contact your lender to set up a repayment plan.
Secured personal loans frequently asked questions
What's the difference between a secured personal loan and a car loan?
A car loan can be a type of secured personal loan, but not all car loans are secured. You could, for instance, get an unsecured car loan. However, car loans are used specifically for the purpose of buying a vehicle. The difference between the two is that the car will be used as security for the secured personal loan.
What happens if I default on a secured personal loan?
If you default on a secured loan, your lender can sell your asset to recoup its losses.
If you think you are unlikely to make your repayment, contact your lender directly and inform them prior to the default.
Most lenders will find a way to defer your payment (sometimes at a fee). This is to help you prevent losing your asset.
Do you need to provide extra documents if you're buying a car?
In short, yes. A secured personal loan requires extra documentation as the lender will need to verify details about the asset.
These details will need to be confirmed with the lender both before you apply and before you purchase the asset.
Expect to provide any of the following documents:
- Car insurance policy
- Dealer tax invoice (if purchasing from a dealership)
- Car registration number
- Vehicle identification number (VIN) or chassis number
- Engine number
- How much you paid for the car
- The contact information of the seller (dealership or private seller)
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