What are secured loans?

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 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.

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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.

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.

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. 

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.

Secured loans can be negotiated with either fixed rates or variable 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 loan application fees, establishment fees, redraw 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

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.

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 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 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.

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 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.

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.

Are there low doc personal loans?

Self-employed borrowers may be eligible for low doc personal loans, which require less documentation in their application process than many other personal loan options.

It’s important to remember that though low doc personal loans may require less paperwork, you may need to provide additional security, or pay a higher interest rate.

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.

Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

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

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

Can you pay off a quick loan early?

Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

Can I get a $2000 loan on Centrelink?

If more than half of your income comes from Centrelink benefits, it may be more difficult to have a $2000 loan application approved. Many lenders will check if you can afford a loan’s repayments on the income from your job before they’ll approve an application, and many won’t count Centrelink payments when assessing your income for this purpose.

Some lenders may offer $2000 loans to borrowers on Centrelink – consider contacting potential lenders to check before applying.

What can I use a bad credit personal loan for?

Generally, bad credit personal loans can be used for the following purposes:

  • Debt consolidation
  • Paying bills
  • Buying vehicles
  • Moving expenses
  • Holidays
  • Weddings
  • Education

Some lenders restrict how their bad credit personal loans can be used as part of their commitment to responsible lending – be sure to check before applying.

What documentation is needed for a self-employed personal loan?

Personal loans may require a borrower to provide proof of identity, proof of residence, details of any other outstanding loans (including credit cards), details of assets they own (e.g. savings, car, property), and proof of income.

While borrowers in full-time or part-time employment can often provide payslips and similar documents to prove their income, self-employed borrowers may need to provide other documents, such as bank statements or tax returns, to demonstrate that their income can cover a loan’s repayments.