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What is a secured personal loan?

When you take out a personal loan in Australia, you’ll often get to choose between a secured loan or an unsecured loan.

Secured personal loans use an asset, such as a home or a car, as collateral for the money borrowed. Unlike unsecured personal loans, where there's no asset placed as collateral, a secured loan gives the bank or lender more confidence in the knowledge that if the borrower defaults, they may be able to sell the asset to get their money back.

Because of this extra security for the lender, secured personal loans often have lower interest rates than unsecured personal loans.

Can anyone take out a secured personal loan?

While secured loans are commonly associated with new car loans or home loans, you can get a secured personal loan for almost any eligible purchase, provided you have an asset of equal or greater value to secure the loan against.

Like other personal loans, secured personal loans have their own set of eligibility criteria to fulfil. Different lenders will have different requirements, though some of the common basic requirements include:

  • Providing proof of identity and proof of residence
  • Providing proof of income to show you can afford the repayments
  • Providing details of the asset you’ll be using to secure the loan
  • Having a good credit history

As with many other financial products, you may find that borrowers with excellent credit scores will be offered the most competitive personal loan interest rates on the market.

That said, if your credit score is less than ideal at the time you are looking to apply for a loan, lenders may be more likely to approve your application for a secured loan than an unsecured loan as it will provide them with collateral to fall back on should you default.

If you’re not sure if you can get a secured personal loan because of your credit history, consider visiting our credit score hub to check your credit score and for helpful tips on how to boost your credit score.

How much can I borrow with a secured personal loan?

Most personal loans can be used to borrow between $2000 and $100,000, though this will depend on the lender’s policies. You can estimate the repayments on a personal loan using RateCity’s Personal Loan Calculator.

The loan amount you can be approved for may depend partly on how comfortably you can afford the repayments on your income, and partly on the value of the asset you’ll be using for security. Generally you’ll need to provide a security asset of equal or greater value than the amount you plan to borrow.

How much could a secured personal loan cost you?

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What are the benefits of a secured personal loan?

  • You could potentially borrow a larger amount compared to an unsecured loan
  • You will likely be able to access a lower interest rate
  • You may be able to pay the loan off over longer terms

What assets can I use to secure my personal loan?

Secured loans require you to provide an asset as collateral for the loan. There are a number of options you may be able to choose from, such as:

Personal loans secured by car

The most likely personal loan that would be secured by a car is a car loan. Secured car loans are often for new cars only, as a newer car is more likely to retain enough value over time to secure the loan in case of default. Some lenders will let you secure a loan with the value of a used car, though age limits on the car may apply e.g. only cars under 7 years old.

Personal loans secured by deposit

Sometimes known as cash-secured loans, this is where your own savings are used as collateral. In simple terms, the loan is secured on your savings account or term deposit. This may also help to build your credit history.

Personal loans secured by property

If you own your home outright, or you have built up enough equity, you can use your property to secure your personal loan. Your usable equity is typically 80 per cent of your home’s current value, minus the remaining principal owing on your mortgage.

Personal loans secured by other assets

If you own other valuables, such as jewellery or artworks, you may be able to ask a lender to accept them as collateral for a personal loan. Not every lender will accept every type of asset as security on a personal loan.

What are the risks of a secured personal loan?

  • If you fail to meet your repayments you risk losing your asset
  • There may be restrictions on what you can use as collateral
  • Longer loan terms may be appealing, but can lead to more money spent on interest charges

What happens if I default on a secured loan?

If you fail to meet the fortnightly or monthly repayments on your secured personal loan, the lender has the right to repossess and sell the asset that you provided as collateral, in order to recoup any money lost.

If this occurs, not only will you be left without your valuable asset, your credit history will also be negatively affected.

How do I compare secured personal loans?

Not every personal loan will be appropriate for every borrower’s personal financial situation. To make sure you’re comparing personal loans that may suit your needs, consider the following:

  • Loan amount: You may be able to access between $2000 and $100,000 with a secured personal loan, though the minimum loan amount and maximum loan amount can vary between loan products.
  • Loan term: Repayment periods for secured personal loans generally range from 1 to 7 years, with some Australian lenders offering loan terms of up to 10 years. When you are looking at the loan repayment period for a secured loan and considering different terms, keep in mind that the longer you take to repay, the more interest you may be charged over the life of the loan. 
  • Repayment costs: You might like to consider using RateCity's Personal Loan Calculator to get an estimate of what your repayments might look like, depending on your desired loan amount, interest rate and loan term. This can give you an idea of the total cost of the loan after fees and interest charges are factored in.
  • Fixed vs variable rate: Secured loans are available with either fixed interest rates or variable interest rates to better suit different circumstances. When comparing loans, pay attention to the different comparison rates available, as well as the extra features offered, and any fees involved such as application fees, establishment fees, redraw fees, extra repayment fees, early repayment fees and other ongoing monthly fees.

How do I find the best secured personal loan?

The best secured personal loan for you will depend on your financial situation and personal goals. The personal loan with the lowest interest rate may not always be the best choice for your situation, so it’s important to compare interest rates, fees, features and benefits before making any decisions.  

  • RateCity’s comparison tables allow you to quickly view and compare a wide variety of different personal loans side by side. Use the filters to narrow down your search until you’re comparing a shortlist of secured personal loans that may match your needs.
  • A personal loan calculator can help you estimate your repayments, so you can confidently plan your household budget.
  • RateCity’s Real Time Ratings™ combine the cost and flexibility of a personal loan into a simple star rating. These ratings are updated every day, so you can be confident that they provide an up to date indication of a personal loan’s overall value. You can also check the Personal Loan Leaderboards for some of the top-rated personal loans in different categories, and look for the gold badge of RateCity Award winners.

What is a secured bad credit personal loan?

A bad credit personal loan is 'secured' when the borrower offers up an asset, such as a car or jewellery, as collateral or security. If the borrower fails to repay the loan, the lender can then seize the asset to recoup its losses.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.