Compare secured personal loans
What are secured loans?
When you take out a personal loan there are two main options that can be chosen, depending on your requirements and what a lender is prepared to offer you. Secured loans are a way a bank or other lender can protect their investment because these types of loans are secured by an asset that is used as collateral, such as a home or a car. Unlike unsecured loans, where there is no asset placed as collateral protection for the lender, a secured loan gives that lender more comfort in the knowledge that if you default they may be able to sell the asset to get their money back.
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Secured loans
What are secured loans?
When you take out a personal loan there are two main options that can be chosen, depending on your requirements and what a lender is prepared to offer you. Secured loans are a way a bank or other lender can protect their investment because these types of loans are secured by an asset that is used as collateral, such as a home or a car. Unlike unsecured loans, where there is no asset placed as collateral protection for the lender, a secured loan gives that lender more comfort in the knowledge that if you default they may be able to sell the asset to get their money back.
Why do people use secured loans?
Secured loans are popular if you want to borrow a large sum of money, such as for purchasing a property or a new car, and in general you may be offered higher borrowing limits, lower interest rates (and, possibly, fees) and a longer term for the debt to be repaid. Understandably, lenders are unlikely to advance a large amount of money without some assurance that it will be repaid. If you put, for example, your house up as collateral the lender reckons you will do everything you can to keep up regular payments until the loan term is ended. 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?
As the name indicates, a secured loan is secured on an asset that you possess. The most common form of a secured loan is when you take out a mortgage. The loan is secured on the property you are buying and the assurance of that kind of protection for the lender means they may offer more advantageous interest rates and let you borrow more than you would otherwise have been able to. Repayment periods for large secured loans can be up to 25 years, and some companies may offer an even longer period. When you are looking at the repayment period for a secured loan remember the longer the time you take to repay the more interest you will be paying.
Secured loans can be negotiated with either fixed or variable interest rates so you can make a measured decision as to which is most appropriate for your circumstances.
What are the pros and cons of secured loans?
Secured loans will generally offer larger amounts to borrow and, because they have collateral – which could also include personal belongings such as valuable jewellery or artworks – you may benefit from a lower interest rate than if your loan was unsecured. Longer repayment times can also be beneficial.
If you fail to pay off the loan, for whatever reason, and you don't adhere to the loan's terms and conditions, the lender is entitled to the asset you have put up as collateral and could sell it to pay off your debt.
Kate was one of RateCity's Personal Finance Commentators. She has been a journalist for more than a decade, most of which has been spent writing about money. Most recently, she was the Australian Financial Review's personal finance correspondent. She is passionate about personal finance and women's independence.
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FAQs
If you’re having trouble being approved for a loan of less than $2000, and urgently need to purchase household essentials, there may be emergency loan options available to you.
For example, the No Interest Loans Scheme (NILS) allows low-income borrowers to take out interest-free loans of up to $1500 for essential goods and services.
For further assistance, consider contacting a financial counsellor, or calling the National Debt Helpline on 1300 007 007
The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.
However, people with bad credit histories can make debt consolidation work by following this three-step process. First, find a lender willing to give you a bad credit personal loan – this process will be simplified if you go through a mortgage broker or use a comparison website like RateCity. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced. Third, instead of spending those savings, use them to repay the new 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. The lender can then seize the asset if the borrower fails to repay the 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 charge higher interest rates on unsecured loans than secured loans.
When many lenders assess a borrower’s income to determine whether they can afford a loan’s repayments without ending up in financial stress, they may not count Centrelink payments as income for this purpose.
Before applying for an emergency loan, it may be worth contacting a potential lender to find out if they accept applications from borrowers on Centrelink.
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, with 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 guarantee the loan, taking on the financial responsibility if the borrower defaults.
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, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.
The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:
- The big four banks (ANZ, Commonwealth Bank, NAB and Westpac)
- Smaller banks (such as Bank of Queensland, Bendigo Bank and MyState)
- Mutual banks (such as Heritage Bank, Greater Bank and Newcastle Permanent)
- Credit unions (such as People’s Choice Credit Union, BCU and Community First Credit Union)
- Non-bank lenders (such as Pepper Money, Liberty and RACV)
- Peer-to-peer marketplaces (such as Harmoney, SocietyOne and RateSetter)
There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.
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 will offer $2000 loans to borrowers on Centrelink – consider contacting potential lenders to check before applying.
It may be much more difficult for a self-employed borrower to successfully apply for a personal loan if they also have bad credit. Many lenders already consider self-employed borrowers to be riskier than those in full time employment, so several self-employed personal loans require borrowers to have excellent credit.
If you’re a self-employed borrower with a bad credit history, there may still be personal loan options available to you, such as securing your personal loan against a vehicle of equity in a property, though your interest rates may be higher than those of other borrowers. Consider contacting a lender before applying to discuss your options.