Secured personal loans – What are they?

PLP - Secured Personal Loan

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Trying to navigate your way through the world of online lending can be downright terrifying and put you off applying for a loan completely. There’s just too many to pick and research about. When it comes to finding the best deal and avoiding any potential interest traps, knowledge is power. 

The team at Personal Loan Pal are the lender-finding specialists, committed to helping everyday Aussies who may be new to borrowing money. If you’re looking for personal finance but are still quite unsure about the difference between secured and unsecured personal loans, then let Personal Loan Pal show you the way. 

What is a secured personal loan?

If you’re not sure what a secured personal loan is then you’ve come to the right place and who knows, we might be able to find you a lender offering you the secured loan you need.

A secured loan is a very different financial product. To obtain this type of loan, the borrower offers his or her tangible financial assets, like a car, house, boat, or caravan, as collateral. This gives lenders an assurance that the loan will be repaid either via money or the collateral you put up. The property is often appraised to determine its worth before approving the loan. 

How does a secured personal loan work?

Different lenders have different secured personal loan requirements, however,  a lender will always assess the borrower’s ability to repay the loan before approval. This could include subtracting the borrowers living expenses and commitments from their income to determine whether the loan is affordable. 

Lenders often offer better terms to borrowers who have a high income, an excellent credit score and who work full-time. 

Depending on the lender, secured loans could have a lower interest rate when compared to unsecured loans as the risk to the lender is generally lower. 

When approved for a secured loan, the lender will hold an encumbrance over the asset placed against the loan as security. Whether this is a car, house, motorbike or boat; the lender technically owns the asset until the secured personal loan has been fully repaid. 

This isn’t to say you will no longer possess the property, an encumbrance only comes into action if you wish to sell the asset, as the lender will need to be paid first; or the loan is defaulted upon, where the lender then has the right to seize the asset to cover the secured loan debt. 

What assets can be used as collateral?

Lenders often seek collateral that has a value equal to or greater the amount of the secured loan being borrowed.

Depending on the lender, the following items can be used as secured loan collaterals:

  • Real estate
  • Bank accounts, including savings accounts, money market accounts, checking accounts, etc. 
  • Cars, SUVs, trucks, boats, motorcycles, or other vehicles
  • Mutual funds, Stocks or bond investments
  • Insurance policies
  • High-end collectables, precious metals, and other valuables

Usually, the borrowers have the physical control of the collateral, though the lender has a legal interest in it. For instance, if you have a car as collateral, you can still drive it. But you are responsible for maintaining it in good condition. 

What is the difference between a secured and unsecured personal loan? 

As compared to a secured loan, an unsecured loan is not protected by collaterals. In the event you default on the loan, the lender can’t acquire your property. This means that the lender is more likely to offer you a larger amount if you attach security against your loan. 

The most common differences between secured and unsecured loans are:

  • With secured loans, you have to provide the lender with assets that could be used as collateral. Whereas unsecured loans involve providing collateral to obtain a loan.
  • Secured loans usually have a lower interest rate as compared to unsecured loans.
  • It can be seen as easier to obtain secured loans while getting unsecured loans can be difficult. This is because unsecured loans are riskier than secured loans.
  • Secured loans often have longer repayment periods than unsecured loans.
  • Examples of secured loans include mortgage, auto loan, boat loan, and home equity line of credit. The most common types of unsecured loans are student loans, credit cards, and personal loans.

Who can apply? 

here are just a few basic requirements that must be met before you can apply with Personal Loan Pal. You must:

  • Be 18 years old or older
  • Have been paid a regular income into a personal bank account for at least the past 90 days
  • Be an Australian citizen, or have permanent residency
  • Have a direct contact phone number and email address

Types of secured loans

There are different types of secured loans for different circumstances, and each type has its own terms and benefits:

Home Mortgages

A mortgage is secured by putting up your home as collateral. This means the lender will foreclose the property if a borrower fails to pay his or her secured loan.

Auto Loan

An auto loan uses your car being purchased as collateral. The lender pays the car’s price to the dealership, and borrowers have to pay off the amount in instalments. Also, the borrower pays interest on the borrowed amount to the lender. 

In case the borrower fails to pay the loan, the lender could seize and sell the car to recover the debt.

Title Loan

These short-term loans use paid-off vehicles as collateral. The vehicle should be in good condition to qualify for this loan. 

Lenders examine the vehicle for aesthetic and mechanical defects to determine its value. The loan amount should not be higher than half of the vehicle’s value.

For this loan, the borrower must have a steady income to show the ability to repay the loan. Unlike other secured loans, title loans have high-interest rates that often increase the cost of the loan.

How to get a secured personal loan with bad credit?

Are you hoping to find a bad credit secured loan? Well fortunately for you it’s a lot easier to get a secured loan with bad credit than an unsecured loan! This is because by putting your liquid asset as collateral, you are essentially guaranteeing that the loan will be repaid. Thus, this type of loan involves less risk, even if the borrower has a bad credit history.

Ready to Apply?

Now that you’re up to speed with secured loans, head over to our homepage where can you apply for both secured and unsecured personal loans. Let Personal Loan Pal do the hard work for you and match you with a responsible lender who can provide you with the cash you need. An application can only take a couple of minutes, and if you meet our basic criteria we’ll start the search!