Do I need security to take out a personal loan?

Looking for a personal loan to help you afford that holiday, buy that car or start that business? As well as thinking about how much you plan to borrow, and whether you can afford the repayments, it’s important to consider the security requirements of different personal loans.

While some lenders require a security deposit or some other collateral when you apply for a personal loan, other lenders require no such guarantee from a potential borrower. Working out whether a secured or unsecured personal loan is more suitable for reaching your goals will depend on a range of factors, including your household’s budget and unique financial situation.

Secured personal loans

Just like how most mortgages require the borrower to pay a security deposit up-front to guarantee the loan, several personal loans also require the borrower to provide financial security to help protect the lender in case the borrower defaults on the loan.

While you can pay a cash deposit to secure a personal loan much like a home loan, many personal loans can also be secured by other assets, such as a car, equity in a property, or valuable art or jewellery. Many car loans are structured as secured personal loans, using the value of the vehicle being purchased to guarantee the loan.

Secured personal loans tend to have lower interest rates, as the security helps to protect the lender against the risk of the borrower defaulting. Secured loans can also appeal to borrowers with bad credit, as the extra security can help to reduce their risk to a potential lender, and help improve the likelihood of their loan application being approved.

The primary risk with a secured personal loan is that if you can’t pay back the loan and default, you’ll lose your security, whether that’s a cash deposit, your car, or your property – the lender will repossess and sell the asset to make up its losses. Defaulting on a loan is already bad news for your credit rating, but losing the car you use for work, or even your home, can further complicate your situation.

Unsecured personal loans

You don’t always need to provide security for a personal loan. Several lenders offer unsecured personal loans, where you can borrow money without requiring an asset as collateral.  

The benefit of an unsecured personal loan is that you won’t need to put one of your assets at risk. If you default on an unsecured personal loan, the lender will take legal action to recover their money, and your credit rating will take a hit, but you won’t automatically lose your car, house, or other assets.

Unsecured personal loans can also be useful for borrowers who have financial goals, but don’t have appropriate assets available to use as security. For example, some car loans only let you use new cars of particular makes and models as security, as used cars are unlikely to retain enough value to cover the loan’s cost in the event of a default. So while it may sometimes be tricky to buy a used car with a secured loan, an unsecured loan may be more helpful.    

On the other hand, unsecured personal loans tend to have higher interest rates than their secured counterparts. This is because without a security deposit, the lender is at greater financial risk if the borrower should default, meaning the lender will likely charge the borrower more in interest to cover their costs.

Also, because these loans tend to be riskier for lenders to provide, a borrower will often need a strong credit rating and clean credit history to successfully apply. If you already have significant debt, or have had credit troubles in the past, it may be more difficult to successfully apply for an unsecured personal loan.

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Learn more about personal loans

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

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.

Do student personal loans require security?

While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, which typically have higher interest rates.

Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will fully or partially guarantee the loan, taking on the financial responsibility if the borrower defaults.

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.

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.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

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.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

What do single parents need for a personal loan application?

Much like applying for other personal loans, applying for personal loans for single parents will likely require the following:

  • Proof of identity
  • Proof of residence
  • Proof of income
  • Details of assets (e.g. car, home)
  • Details of liabilities (e.g. credit cards, other loans)
  • Loan amount
  • Loan term

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.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

Can unemployed single parents get personal loans?

It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.

If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.