What Is a Secured Personal Loan? Your Guide

A secured personal loan is a type of loan where a borrower provides an asset as security for the credit contract. The asset may reduce risk for the lender depending on the loan structure and the asset’s value, but secured loans also involve important considerations — including the possibility that the lender may enforce its rights over the asset if repayments are not met.

In this guide, we explain what a secured personal loan is, how it works, key factors to consider, what lenders may assess during an application, and how secured loans compare with unsecured personal loans. The aim is to support financial literacy and help readers better understand how different credit options work.

What is a secured personal loan?

A secured personal loan is a loan that is supported by an asset provided as collateral. The asset is used as security for the lender under the loan contract.

If the borrower does not meet the repayment obligations under the contract, the lender may have legal rights relating to the asset. These rights and processes depend on the loan agreement and applicable laws.

Secured personal loan meaning

“Secured” means the loan is connected to an asset of value provided as collateral.

Providing an asset as security may form part of a lender’s risk assessment. In some cases, lenders may offer different pricing or lending terms depending on whether a loan is secured or unsecured, although interest rates and loan conditions vary between lenders and borrowers.

Why lenders use security

When an asset is used as security, it may help reduce potential loss to the lender if the borrower cannot meet their repayment obligations.

However, lenders must still assess the borrower’s financial situation, including income, expenses, and existing debts, when considering an application. Approval and loan terms depend on the lender’s lending criteria and responsible lending obligations.

Types of collateral used for secured personal loans

Lenders may accept assets that have a clear ownership record and an identifiable resale value. Policies differ between lenders, and not all assets are accepted.

1. Vehicles

Common examples include:

• Cars
• Motorbikes
• Boats
• Caravans

Lenders may consider factors such as the vehicle’s age, condition, registration status, and estimated market value when determining whether it can be used as security.

2. Property

Some lenders may accept equity in residential property or land as security. This arrangement may involve additional legal processes and costs compared with standard personal loan products.

3. Other high-value assets

In some circumstances, lenders may consider assets such as:

• Machinery
• Business equipment
• Jewellery or other valuables

The availability of these options varies widely by lender.

How loan amounts may relate to collateral

Loan amounts depend on a range of factors, including the lender’s policies, the borrower’s financial situation, and the value of any asset offered as security.

For example, if a car is valued at $8,000, a lender may offer a loan amount that reflects both the asset value and the borrower’s capacity to repay.

Pros and cons of secured personal loans

Pros

Potential differences in pricing or loan terms

Some lenders may offer different interest rates or loan structures for secured loans compared with unsecured loans, depending on the lender’s risk assessment and pricing model.

Access to different loan structures

Some secured loan products may allow larger loan amounts or different repayment terms than unsecured loans, depending on the lender’s policies and the borrower’s circumstances.

Security may form part of risk assessment

Providing collateral may be one factor lenders consider when assessing an application, along with income, expenses, and credit history.

Longer repayment periods in some cases

Some secured loans may offer longer loan terms. While this may reduce individual repayment amounts, longer terms can increase the total interest paid over the life of the loan.

Cons

Risk to the secured asset

If repayments are not met according to the loan agreement, the lender may be able to take steps to recover the outstanding debt, which could involve enforcing rights over the asset used as security.

Additional documentation or checks

Secured loans may involve asset verification, ownership checks, or valuation processes during the application.

Restrictions on asset eligibility

Lenders typically have rules about the type, age, and condition of assets that can be used as collateral.

Possible insurance requirements

If a vehicle or similar asset is used as security, lenders may require comprehensive insurance while the loan is active.

How to get a secured personal loan

Application processes vary between lenders, but they often include the following steps.

1. Choose your collateral

Select an asset that meets the lender’s eligibility criteria and confirm you can provide documentation proving ownership.

2. Gather documentation

Lenders may request information such as:

• Proof of identity
• Proof of income
• Bank statements
• Asset ownership documents
• Vehicle registration papers (if applicable)
• Insurance information (if required)

3. Submit your application

The lender may assess your financial situation, including:

• Income
• Expenses
• Existing debts
• Credit history

These steps form part of responsible lending assessments.

4. Asset verification

The lender may:

• Confirm ownership of the asset
• Assess its condition
• Estimate its market value
• Check whether the asset is already subject to finance

5. Approval and contract

If the application is approved, the lender will provide a credit contract outlining key details such as:

• Interest rate
• Fees and charges
• Repayment schedule
• Conditions relating to the security

6. Loan funding

Funds are typically provided after the contract is signed and any required security documentation is completed. Timeframes vary between lenders.

Considerations when applying for a secured personal loan

Before applying, it may help to consider the following points.

Choose your collateral carefully

Only use an asset you can reasonably afford to place at risk if financial circumstances change.

Understand the contract terms

Review the interest rate, fees, repayment schedule, and any conditions relating to the secured asset.

Plan repayments

Setting reminders, automated transfers, or budgeting tools may help you manage repayments consistently.

Consider insurance costs

If insurance is required for the secured asset, include this expense when reviewing your budget.

Be cautious of warning signs

Be careful if a lender:

• Pressures you to borrow more than you need
• Does not clearly explain fees and charges
• Does not make reasonable inquiries about your ability to repay

Lenders providing consumer credit must comply with responsible lending obligations under Australian credit laws.

Secured Personal Loans vs Unsecured Loans

Many borrowers want to understand the difference between secured and unsecured loans. The appropriate option depends on individual circumstances, financial goals, and risk preferences.

Secured Personal Loans (general characteristics)

• Require an asset as security
• May involve asset checks or valuation processes
• Loan terms may reflect both the borrower’s financial situation and the security provided
• The asset may be at risk if repayments are not met

Unsecured Personal Loans (general characteristics)

• Do not require collateral
• Loan decisions are typically based on income, expenses, and credit history
• Application processes may involve fewer asset-related checks
• No specific asset is tied to the loan as security

When each option may be considered

Secured loan

Some borrowers consider secured loans when:

• They are comfortable providing an asset as security
• The lender requires security for certain loan structures
• They understand the contractual risks associated with secured borrowing

Unsecured loan

Some borrowers prefer unsecured loans when:

• They do not want to link personal assets to a loan
• They want a credit product without asset security
• They prefer a loan structure that does not involve collateral

Don’t risk your assets: Get a personal loan with Credit24

If you prefer not to provide an asset as security, an unsecured personal loan from Credit24 may be an option to consider, subject to eligibility and lending criteria.

Why choose Credit24?

• No collateral required
• Borrow $500–$10,000
• Funds can be used for a range of purposes in line with the loan terms
• Fixed repayment schedule
• Online application and assessment process (timeframes vary and approval is not guaranteed)
• Fees and charges disclosed in the loan contract
• Regulated under Australian Credit Licence 422839

Unsecured loans can provide access to credit without tying an asset to the contract, but it is still important to ensure repayments fit within your budget.

Disclaimer:

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.

The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply.