Secured personal loans in Australia

Apart from the requirement to offer up an asset as collateral for the loan, a secured personal loan works in much the same way as an unsecured one.

This means when you take out a secured personal loan you enter an agreement with a lender to make regular repayments over a set period to pay back the amount you borrowed, plus any interest, fees or charges. You can usually choose between a fixed- or variable-rate loan.

The interest rates, fees and charges can vary among lenders so it’s a good idea to shop around to compare what’s available based on your needs. Check to see if there’s any exit fee should you repay the loan early.

Read carefully any terms and conditions and the loan’s Target Market Determination (TMD) as this may help you understand if the product is suitable for your needs.

What counts as security for a secured loan will depend on your chosen lender. Generally it’s some asset you own that’s valued enough to cover the amount of the loan, such as property, a car, motorbike, boat or caravan, any savings or term deposits you may have or some other valuable such as jewellery or artwork.

You may be charged an establishment fee that covers any costs incurred by a lender in establishing that you own the asset and its value is enough to secure the loan.

If you’re hoping to use your car as security for a secured personal loan, there may be limits as to the age and type of car a lender will consider eligible.

You can use a secured personal loan for any number of things but they are typically used for one-off purchases, rather than to cover any ongoing or day-to-day spending.

For example, you may want a secured personal loan to help buy a car, pay for a wedding, take a holiday, renovate your home, consolidate your debt or pay for something unexpected such as a medical bill.

If it’s a car you’re after, you may be able to get a better deal if you opt for a car loan rather than a personal loan. A car loan is a type of personal loan where the car you want to buy is used as security against the loan.

You can compare a wide range of secured personal loans by using the comparison tool at the top of this page. You can tailor the results by changing the filters to suit your requirements. When choosing a personal loan, whether it is secured or not is just one factor to look for.

Other factors to consider include:

• Is the interest rate fixed or variable? With a fixed rate, the interest rate and your repayments will stay the same during the loan. With a variable rate, the interest rate can go up or down during the loan, and your repayments will vary as a result.
• What is the comparison rate? The comparison rate on a personal loan takes into account both the interest rate and most upfront and ongoing fees and charges. It’s designed to give you a better idea of the total cost of the loan per year.
• What are the fees? It’s also important to look at the fees charged on the loan. For example, personal loan fees can include an establishment fee, monthly service fees, missed payment fees, extra repayment fees and early repayment fees.
• What is the loan duration? By choosing a loan with a longer duration, you will typically get lower repayments each week, fortnight or month. But, you will usually pay more interest in total.
• What is the loan for? Check to see if there are any restrictions on what the personal loan can be used for. For example, is it for a boat, caravan, debt consolidation, green products, a holiday, motorcycle, motorhome, PC or electrical goods or renovations to your home.
• What features are available? Some lenders offer different loan features which may suit your needs when it comes to managing your finances. For example, can you make extra repayments on the loan and is there a fee for doing so? Is there a redraw facility so you can access extra repayments if you need to?

You can also view Canstar’s expert Personal Star Ratings, which compare loans based on cost and features.

Secured personal loans are available from many of the bank and non-bank lenders that are authorised to provide credit products in Australia.

Once you ‘ve decided on which lender you prefer you can usually start the loan application process online, or you may be able to telephone the lender or visit a branch.

Check first to make sure you are eligible to apply for a secured personal loan from your chosen lender. Typical conditions include being aged 18 or over and at least a resident in Australia or New Zealand.

If you don’t already have an account with the lender you will need to provide some information to verify your identity. You will also need to show some evidence of your income, expenses, assets you own and any other debts you have.

A potential lender will likely check your credit score, which could affect the interest rate it’s prepared to offer you, so it might be wise to look at that yourself beforehand to see if there is anything that you need to address. You can check your credit score yourself for free with Canstar, or apply directly to any of the credit reporting services.

What a potential lender is typically looking for is to make sure that the secured personal loan you’ve applied for is suitable for your needs and your ability to repay the loan.

The Australian Securities and Investment Commission says lenders with a credit license have an obligation to make sure that any agreement is not “unsuitable for the consumer”.

A potential lender may also want some verification that the asset you intend to put up as security is yours, worth enough to cover the loan amount and will be maintained and cared for over the duration of the loan to make sure it retains that value.

There are many reasons why you might prefer to apply for a secured personal loan rather than an unsecured loan.

Pros

• You may be paying a lower interest rate than if you took out an unsecured personal loan
• You may be able to borrow more than you would on an unsecured personal loan
• They can be used for a wide range of purchases

Cons

• You have to put up an asset to secure the loan, which you could lose if you default on the loan
• By taking on debt rather than using savings to cover an expense, you may put stress on your finances and fall behind on repayments. This could affect your credit score.

If you default on your secured personal loan, the lender may take possession of the asset you used to secure the loan to recover its money.

If you get behind on your repayments, the National Debt Helpline (NDH) not-for-profit service says your lender must send a default notice giving you a minimum of 30 days to pay the amount you are behind plus your usual repayment.

If you’re still behind after that notice expires, the NDH says your credit provider may start court proceedings.

A default can be listed on your credit report if any payment is overdue for at least 60 days, and if the overdue amount is $150 or more, according to the Office of the Australian Information Commissioner (OAIC).

Any defaults on your loan repayments may be listed on your credit report for up to two years. This may affect your credit score if you later apply for any other loan, credit or other financial service.

If you think you may have difficulty in making a repayment, then it might be a good idea to talk to your lender first. You may also contact the NDH for free, independent and confidential advice: call 1800 007 007 or see ndh.org.au for more details.

If you have bad credit, you may find it harder to get approved for a secured personal loan. You may find it particularly difficult to get approved for a loan with a major bank or other large financial institution, as they often require applicants to have a good credit score.

Some smaller lenders offer personal loans that can be tailored to borrowers based on their credit score. If you are applying for one of these risk-based personal loans, you will typically be charged a higher interest rate if you have a bad credit score.

If you don’t need a loan urgently, it might be wise to improve your credit score before you apply for one. There are various steps you can take to help improve your score over time. You can also check your credit score for free with Canstar. If you need help managing your debts, you may want to speak to a free financial counsellor. You can call the National Debt Helpline on 1800 007 007.

Most lenders will consider a secured personal loan to be repaid between one to seven years. You may be able to find one willing to lend over a longer period if you shop around.

Some of the alternatives to taking out a secured personal loan to cover a large expense can include:

• using your savings or waiting until you have saved up enough money to cover the cost
• accessing cash by withdrawing any extra repayments you have made on your home loan if it has a redraw facility

applying for a no-interest loan through the No Interest Loan Scheme (NILS). This is only available to eligible low income earners to pay for certain essential goods and services.

The cost of a secured loan depends on how much you  want to borrow, the interest rate and any fees or other charges involved with administration of the loan.

You may be charged an establishment fee which may include any costs involved in verifying the value of any asset you opt to use as a security. You may be able to reduce the overall cost if you can make extra repayments.

A wide range of banks, credit unions and other lenders offer secured personal loans in Australia. You can compare the personal loans on Canstar’s database using the table at the top of this page. You can tailor the results according to your preferred loan amount and loan duration.

Please note that the results do not take into account your credit history and other factors specific to your loan application, which may affect whether you are eligible for the loan or not and what interest rate might apply.