Secured Personal Loans

A secured personal loan can help you elevate to the next step towards realising your goals. Whether you want to fund your holiday or business startup, a secured personal loan can help.

Long gone are the days when personal loans were a ‘one size fits all’ product. Today personal loans are available in different forms to cater to the needs of different borrowers. In this guide, we focus on secured personal loans and everything you need to know about them.

What is a secured personal loan?

Secured personal loans are those that require the borrower to use an asset as security for the loan. The asset used to guarantee the loans can be pre-existing or one that you intend to buy with the borrowed funds.

To avoid inconveniences, always confirm that the lender accepts your specific purchase as security. You can apply for any amount up to $100,000 for a term of up to 7 years. The loan limit and term varies from one lender to another.

How does a secured personal loan work?

When applying for the loan, you’ll be required to provide all the details of the asset to the lender so that its value can be calculated. Once the lender has verified the asset’s value, you can then borrow a loan amount in the range of the estimated value.

Secured personal loans have less risk to the lender and as such, come with a lower interest rate. The most common secured personal loan in Australia is a car loan.

A secured personal loan can also be used for other purposes beyond car purchase. However, in such cases, the value of the asset you use (as security) needs to be equal to or greater than the loan amount. You can use the loan to clear your debt, invest in property, or even finance your life goals.

What assets are accepted as security on secured personal loans?

The asset accepted as collateral depends on the purpose of the loan you are borrowing and the lender. The commonly accepted security forms are home equity, jewellery items, precious metals, art & antiques, and term deposits.

For the latter, the loan amount you can borrow will determine how much you have in the term deposit. You can also set a new car or used car as security, depending on the lender. You can also use motorcycles, caravans, RV’s, trailers and more as security so qualify for a secured personal loan. If however, you are looking to borrow to purely finance a caravan or motorbike, you can consider caravan and motorbike loans.

Is a secured personal loan the best option?

Before applying for any loan product, it is crucial to gauge whether it is right for you. This goes for secured loans as well. Although they come with several benefits, secured loans are not suitable for everyone.

It is ideal if you’re looking to borrow a loan that has a longer loan term as the lender knows you will try to repay the loan as fast as you can to reclaim the asset used as collateral. Besides, with an asset as collateral, the lender faces less risk even if the repayment term is longer.

It is also a great option when you want a loan with a low interest rate and don’t mind using one of your assets as collateral. You can apply for the loan and pay it off quickly with only a small accumulated interest.

What are the different lenders of secured loan?

There are different types of lenders offering secured loans in Australia. You can choose to get a loan from an independent lender, a bank, or even a mutual.

Type of Lender

Mutuals

The best features of mutuals, also referred to as building societies and credit unions are that they have physical branches (some may be limited to specific states), lower interest rates, and flexible loan qualification requirements. The flip side is that they offer loans to members or individuals looking to join the mutual and generally give smaller loan amounts

Banks

Traditional banks come with the advantages of having physical branches, customer loyalty, and a solid reputation.

On the downsides, they charge higher interest rates on the loans and have little to zero flexibility in loan qualification with particular credit history. It is very difficult to get a secured loan from a bank if you have a bad or average credit score.

Most banks also have non-negotiable collateral criteria and only accept specific assets like newer cars. A bank may reject your application if your car will be more than, say 12 years old, at the end of the loan term.

Independent lenders

Independent lenders have lower (sometimes personalised interest rates due to less overhead, flexible qualification criteria, and accept a wide range of collateral. Since most independent lenders are online, they lack physical branches around Australia. This can be a deal breaker if you prefer in-person arrangements.

Independent lenders have grown over the last few years as they generally operate on ‘rate for risk’ basis. Meaning that each application is approved based on its own merits, usually credit score. This allows for high credit score customers to receive a market leading rates, usually better than the banks and mutuals can offer but it also allows for lower credit score customers, that may get declined by the banks, to get approved albeit at a higher rate.

Loan qualification

The eligibility criterion of secured personal loans is almost similar to that of unsecured personal loans.

To qualify for the loan you need to be an Australian citizen (or permanent resident), 18+ years, and employed. Most lenders will reject your application if you are on probation. The accepted employment forms are full time, part-time, casual (tenure more than 6 months), and self-employed (tenure more than 24 months).

For the latter, you need to provide tax returns. Note that a proof of ownership of the asset you intend to use as security is also required.

A good credit history (666+ for Equifax and 625+ for Experian) boosts the chances of your application getting approved. Always confirm that you have provided all details needed and filled the application correctly. Errors and omissions can delay the approval process or disqualify you.

How do I compare secured personal loans?

Here are the factors to keep in mind when comparing your options:

  • The loan term offered by the lenders and restrictions (if any) involved
  • The loan amount in the package you’re interested in and if it aligns with your target
  • The assets accepted by the lender as security as some lenders have restrictions on the assets they consider valid
  • Fees and any additional charges on the loan, including late repayment
  • How competitive the interest rate charged by the lender is
  • The flexibility around the loan i.e. if the lender allows for early or additional repayments without a penalty

The pros & cons of secured personal loans

Here are the benefits and drawbacks of secured loans.

Pros Cons
The main upside of secured loans is that they have competitive interest rates as the lender faces less risk. In the event you run into an unforeseen misfortune that prevents you from making repayments, the lender can sell your asset to repay the outstanding amount.
They generally have a higher loan amount limit and longer loan term. You could lose more than the asset, for instance, if the asset were a crucial component of your life like a personal car for commuting.
Secured loans also help boost your credit score as long as you’re able to repay in time. Some lenders have a restriction on the asset you can provide as security e.g. condition of the vehicle.

Top tips for getting a secured personal loans

Key points to keep in mind when applying for a secured personal loan are:

  • It is significantly easier to get a secured loan than an unsecured one if you have a poor credit history
  • Having a steady income increases your chances of getting a secured loan
  • You need an asset of equal or greater value than the loan amount you’re borrowing
  • Only send one application because multiple applications are often considered red flags and dent your chances of approval
  • Before applying ensure that you have met all other repayment obligations
  • Ascertain that you are willing to risk the asset before applying for the loan