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Learn more about personal loans

What is a secured personal loan?

When you take out a personal loan in Australia, you will generally have the option to choose between a secured or unsecured loan, depending on your requirements and what a lender is prepared to offer you.

Secured personal loans are, quite simply, loans that are secured by an asset, such as a home or a car, that is used as collateral for the money borrowed. Banks and lenders utilise this type of loan as a way to protect their investment. Unlike unsecured personal loans, where there's no asset placed as collateral protection for the lender, a secured loan gives the lender more comfort in the knowledge that if the borrower defaults they may be able to sell the asset to get their money back.

Why do borrowers use secured personal loans?

A secured loan may be an appealing option for those who want to borrow a large sum of money and who have an asset to secure it against. As they are seen as less of a risk to lenders, secured loans typically offer higher borrowing limits, lower interest rates and longer loan terms compared to unsecured loans.

Lenders can be less likely to advance a large amount of money without some assurance that it will be repaid. For example, if you put your house up as collateral for a loan, this will typically indicate to the lender that it is in your best interest to do everything you can to keep up regular payments until the end of the loan term, so as not to risk losing your property.

Secured loans can also be advanced as home equity loans, based on the current market value of your home less the amount you still owe. Once again, the house is the collateral for the loan.

What are the main features of secured loans?

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.

  • Loan amount - The amount you can borrow will be dependent on your personal financial situation and specific lending criteria, but borrowers may be able to access between $2,000 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 many 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 it takes you take to repay, the more interest you will be paying 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 can be negotiated with either fixed interest rates or variable interest rates so you can make a measured decision as to which is most appropriate for your 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.

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 when it comes to what you can use, including the following.

Personal loans secured by car

The most likely personal loan that would be secured by a car is a car loan. When you buy a car with a secured car loan, the bank or lender will hold the ownership of the car until you have paid off the loan in full. When everything has been paid up, the car reverts to your ownership. Although used cars can be eligible for a secured car loan, there are generally restrictions on the age of the car, with most lenders only offering secured car loans for cars up to 7 years old and often less.

Personal loans secured by deposit

Sometimes known as cash-secured loans, personal loans secured by deposit are loans in which your own savings are used as collateral. In simple terms, the loan is secured on your savings accounts or term deposits, and the loan must be with the same bank where your cash savings bank accounts are held. The bank then places a freeze on that account so you can't access it during the period of the loan until the loan amount plus any fees and interest is paid off. The most common reason borrowers might use a personal loan secured by deposit is to improve or build good 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.

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 impacted.

What are the pros and cons of secured loans?
  • 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
  • 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

Does your credit score affect a secured personal loan rate?

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

While secured personal loans will often have lower interest rates than unsecured personal loans, due to the reduced risk to the lender, there will still be variation in the interest rates lenders may be willing to offer you.

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.

Consider visiting our credit score hub to check your credit score and for helpful tips on how to boost your credit score.

Frequently asked questions

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.

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.

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 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 merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full 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.

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.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

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.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

How long does it take to get a bad credit personal loan?

In the best-case scenario, an application for a bad credit personal loan can be made within minutes and then be approved within 24 hours. However, if a lender needs more information or needs more time to verify the provided documents, the application process may take longer.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.