Secured Personal Loan

A secured loan requires you to offer an asset owned by you as security for the loan amount. This provision of security against the loan reduces the lenders risk that they reflect by generally offering lower interest rates and fees on secured loans. The security you offer as collateral against a secure loan can be an asset you currently own or if you are taking out a car loan, the car you are purchasing can also be used as security. Due to the lower interest rates and charges secured loans are a popular option for debt consolidation, where you can consolidate your credit cards, store cards and personal loans debts into a single secured loan offering one easy to manage repayment and a lower interest rate.

If you do not own any assets to offer as security you should consider an unsecured loan which requires no assets to be offered as security against the loan amount. 

A Guide to selecting the best Secured Personal Loan

 

1. Secured Loan vs Unsecured Loan

The primary benefit offered by a secured personal loan over an unsecured loan is a more competitive interest rate and lower fees, benefits the lenders provide based on their assessment that this loan type is lower risk than the unsecured alternative. In addition to this tempting offer of lower costs, secured personal loans also generally include a generous range of features designed to allow you to tailor the loan to your circumstances and funding requirements.

Lenders will tend to extend the amount they will lend as a secured personal loans to as much as $100,000 which can be repaid across long time frames of up to 30 years. These conditions are offered by the lenders in the knowledge that their risk is well within the acceptable range as they have the collateral as security against the loan.

When contemplating the low rates and fees available by opting for a secured loan these must be carefully balanced with an assessment of how confident you are that you can make the loan repayments for the full term of the loan. Failure to make these repayments and defaulting on the loan could have a major consequence, as the lender has the legal right to recover their losses through repossessing the security you placed against the loan, which could be your car or even your home.

 

2. How much can I borrow as a secured loan?

The amount you borrow should be ultimately be determined by what you can afford to repay over the full term of the loan. By using this approach you will be clear on how much you can afford to repay each month or fortnight, after you have considered your other expenses such as home loans, credit card charges and living expenses.

 

3. Secured personal loan comparison

Once you have established what you can afford to repay and that you own assets that you are willing, and able to offer as security against a secured personal loan the task now is to work out how you want your secured personal loan to work. This will involve careful consideration of these features:

 

Fixed or Variable Rate?

Most secured personal loans offer the option of either affixed or variable interest rate.

Variable rates are generally preferred by borrowers looking for the lowest interest rate and the ability to make extra repayments to the loan. The fixed rate option is designed to provide absolute certainty on the repayments you will need to make on the loan, though they tend not to accept additional repayments and often feature hefty fees if you pay the loan out ahead of the full loan term.

 

Comparing Interest rates

The rate that you should use to compare secured loan products is the comparison interest rate and not the minimum interest rate or advertised interest rate. The comparison rate is calculated to a standardized formula and takes into account the products interest rate as well as any fees. All lenders are required by law to feature this comparison rate, and they are prominent within the comparison table above.

 

Ability to make extra repayments

Making extra repayments above the minimum repayment amount delivers 2 positive out comes, it reduces your interest costs and shortens the term of your loan. For example if your secured personal loan was for $30,000 with an interest rate of 9% and term of 4 years, by choosing to repay an additional $200 each month you would make savings in interest charges of $1,450 and shorten your loan term by 11 months

Having decided you would like the option to make extra repayments you should then consider the addition of a redraw facility to provide some flexibility on how you manage your money. These redraw facilities allow you to assess any additional repayments you have made to your secured loan, though they may include some restrictions in terms of frequency of assess and value of the redraws.

 

What fees can I expect to pay with a secured personal loan?

  • Application fee - Secured Loans can be found which waive this fee but generally a fee of between $150 and $500 will be charged by the lender to cover the administration costs of your application.
  • Monthly fee - This often replaces the administration fee considered above, but covers the same administration task. The monthly fee tends to be around $10.
  • Loan break fee - These are no longer legal on Variable Rate Loans, but may sill be levied against fixed rate loans when you choose to repay the loan ahead of the full loan term.
  • Late payment fee - A fee that is pretty standard across most types of credit but can be easily avoided with careful management of your money. These fees vary by lender from $10 rising up to $40 per late payment.

Frequently Asked Questions

Can I repay a secured loan out before the end of the loan term?

Yes you can pay out a secured loan early, but you may have to pay a fee and/or it will depend on how much time is left on the secured personal loan. Some lenders will waive fees if there is less than 6 months left. With fixed rate secured personal loans, you will generally have to pay break costs on top of an early penalty fee. Break fees cannot be charged on Variable Rate Loans by law.