Best Secured Loans - Find the right loan for you
Secured loans offer low interest money for cars, home renovation, projects and more - our guide outlines the best secured loans available and explains what you need to know to reduce the cost of borrowing
Updated 11 December 2020
Finding an affordable loan can be challenging, especially if you have an average credit history. If you own valuable assets (like a house, apartment or car), a secured loan can be an attractive alternative to personal loans.
What are secured loans?
To help you find the best secured loan and avoid overpaying, our guide covers:
Know this first: Alongside cars, many New Zealanders pledge their home as security. The loans are then used to:
What are the risks of secured loans?
When it comes to repayment, neglecting to make a payment puts the security at risk of repossession. For example, if you take a $10,000 secured loan and put your car as security, failing to keep up with the repayments gives the lender has the legal right to sell your car to help repay the loan. If the secured loan is against your home, not making repayments will put your property at risk of a forced sale by the lender. Usually secured loans have fixed interest rates, so your repayments are certain for the length of the loan.
Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist. Interest rates vary based on each borrower and you will receive a personalised interest rate if your application is successful.
What are secured loans?
- Secured loans are loans directly secured against an asset. The asset is known as ‘collateral’ and is something you own, such as a car or home.
- The higher the value of the security, the less risk for a lender. Generally, the lower the risk of the lender losing money, the lower the interest rate on the loan.
- A secured loan is (usually) issued for amounts over $5,000, but sometimes the amount can be lower.
To help you find the best secured loan and avoid overpaying, our guide covers:
- What Secured Loans Cost and How Much You Can Borrow
- Secured Loans vs Unsecured Loans
- How Much Should I Borrow?
- Secured Loans - Pros, Cons and Eligibility
- Best Secured Loan Offers
- Secured Loans - Frequently Asked Questions
- Secured Loans - Final Thoughts
Know this first: Alongside cars, many New Zealanders pledge their home as security. The loans are then used to:
- Fund a home renovation
- Renovate a second property
- Help provide funding for a business
- Medical costs
- Debt consolidation
What are the risks of secured loans?
When it comes to repayment, neglecting to make a payment puts the security at risk of repossession. For example, if you take a $10,000 secured loan and put your car as security, failing to keep up with the repayments gives the lender has the legal right to sell your car to help repay the loan. If the secured loan is against your home, not making repayments will put your property at risk of a forced sale by the lender. Usually secured loans have fixed interest rates, so your repayments are certain for the length of the loan.
Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist. Interest rates vary based on each borrower and you will receive a personalised interest rate if your application is successful.
Know This First: What Secured Loans Cost, and How Much You Can Borrow
Secured loans have, in most cases, four direct factors that affect the overall cost of the loan:
- The interest rate – secured loans are lower risk, so the rate will be lower than a credit card or unsecured loan etc. However, affordability is a major assessment factor, so if you’re low-risk, then the interest rate will reflect that.
- The length of the loan – if you take a three-year loan, the total interest costs will be less than a five-year term loan.
- The application or arrangement fee – this will usually be anything from $150 to as high as $600, and it’s what the lender charges upfront to ‘arrange’ the loan.
- The PPSR fee – this is the cost of registering the lender’s rights to your security (i.e. home or car), and it’s usually a one-off fee of around $10.
How much can I borrow with a secured loan?
- A secured loan (which isn’t used to buy a home) will, generally, range from around $5,000 to anything up to $250,000. Some specialist lenders may offer higher amounts.
- Whatever you borrow, the security you pledge (i.e. car or home) must have a current equity value that’s above the loan balance. If you’re using your home as security, you must have equity in your home.
- Equity is the portion of the home that you own outright; to calculate how much equity you have you deduct the mortgage balance owing from the value of the property. For example, if your home has a current value of $800,000 and you have a mortgage balance of $500,000, the equity you have is $300,000 - the amount of equity increases as you repay more of your mortgage.
Secured Loans vs Unsecured Loans
Secured loans use an asset to ‘secure’ the loan, whereas unsecured loans are advanced without any security or backup. Secured loans are suitable for people who have assets and want to use them to borrow more money. By showing a lender that you’re prepared to risk your possessions to get a loan demonstrates you’re serious and committed to making full repayments. Because of this, the risk is lower, and you’ll be offered a lower interest rate when compared to unsecured loans.
While they ultimately both end up with you borrowing money from a lender, there are a few fundamental differences between secured and unsecured loans:
Secured loans
Unsecured loans
While they ultimately both end up with you borrowing money from a lender, there are a few fundamental differences between secured and unsecured loans:
Secured loans
- Tied to an asset – if you don’t repay the loan, you may have the asset your pledged (i.e. your car or home) sold by the lender to repay what they’re owed.
- Loan size – secured loans are, generally, larger in size than other personal loans (LINK) given the risk is smaller.
- Low-interest rates – because the risk of default is reduced, interest rates are lower as the lender’s risk is lower.
Unsecured loans
- Defaults or non-payments have fewer consequences – your credit score will be affected, and it may be difficult to borrow later on, but you won’t lose your car or home. Debt collectors won’t be able to repossess anything as nothing is secured against the loan.
- Loan size and interest rate – unsecured loans are usually much smaller in size given the risk - $5,000 to $10,000 is a standard range. Interest rates, which need to protect the lender against the risk of non-payment, will be higher.
Secured Loans and Managing Debt Repayments - How Much Should I Borrow?
- We talked to a range of lenders who confirmed that loan purposes were mostly for buying a new car, paying for home improvements (extensions, new kitchen or bathroom etc.).
- Some borrowers have also used a secured loan to consolidate debt which lowers ongoing interest costs and makes repayments more affordable.
- However, it’s important to never put your security at risk – turning unsecured debts (i.e. credit cards, store cards etc.) into secured debt against your car or home is a bad idea if you struggle to keep up with repayments already. The results could put you into a worse financial situation.
Calculating the right amount to borrow
The best secured loan is one that is affordable, but also sufficient for what you need it for so you don't need to take on a second loan or arrange other financing. To work out what that number is, we suggest the following process:
- Calculate how much you need to borrow: Add up the total costs of your planned purchase or project; don't exclude items thinking you will pay them later or 'as you go'; repaying a secured loan is an ongoing cost and will be your priority.
- Decide your payback period: don’t overestimate your ability to repay the loan – if you want to borrow $20,000 and you think it will take five years to repay it, don't convince yourself (or the lender) that you can do it in two or three years. To help you, take a look at your bank account and work out how much you earn and how much you spend (including mortgage repayments, loans etc - i.e. all costs). What’s left is your “free cash flow”. Take your loan total, and divide it by that amount – what you’re left with is how many months it would take to repay the loan.
- Allow for unexpected events: With the estimated repayment period you've calculated, multiply by 1.5 to account for the interest costs and also to give you a buffer – you can always overpay spare money after making your loan repayment – most secured loans don’t charge fees for early or over repayment. Remember, the longer it takes to repay, the more interest you will pay.
- Shop around for the lowest interest rate: The interest rate is the major factor in how much your loan costs. You need to see the lowest percentage offer.
​Secured Loans - Pros, Cons and Eligibility
Secured loans are, arguably, better than unsecured loans but they are not without their risks. We outline the pros and cons below:
Pros:
Cons:
Secured Loan Eligibility
- A low rate of interest
- You can borrow a large sum (if the value of your security is sufficient)
- Credit history isn’t as important if you have strong security.
- Loan approval rates and much higher (compared to unsecured loans)
Cons:
- Highly destructive if you fail to repay – you will lose the secured asset which could be your asset or your home
- Not as cheap as mortgage lending – secured loans have competitive interest rates, but they’re unlikely to be as low as what’s offering by a revolving credit mortgage
Secured Loan Eligibility
- Age – in almost all cases you’ll need to be a New Zealand resident or citizen, aged between 18 and 65 and non-bankrupt
- Security – you must own the security (i.e. you can’t secure someone else’s property unless they agree, whereby they will act as a guarantor). The security will need to have a measurable value and be in a saleable state should it need to be sold later on.
- Affordability – you can only borrow an affordable amount; for example, if you own a $50,000 car but don’t have an income, you won’t be able to borrow $50,000 as repayments would be challenging. Our secured loan calculator (LINK) outlines what repayments will cost.
- An approvable loan-to-value ratio – The equity in the assets you secure must sufficiently cover the value of the loan. For example, if you have a new 95% mortgage, it’s unlikely you’ll be able to borrow on your home. Likewise, if you have a $2,000 car but want to borrow $5,000, this will likely be declined. In general, limited equity means a limited borrowing amount.
Best Secured Loan Offers
We outline the best current offers available from the lenders currently offering secured loans. These include banks, speciality lenders (i.e. peer-to-peer lenders) and credit unions.
Important: The interest rates stated below are the best offers - each borrower will be assessed for suitability, whereby an interest rate offer will be provided if the loan is approved. This interest rate may be higher than those disclosed below.
Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist, which is ordered on interest rate. Interest rates vary based on each borrower due to the security offered, affordability and an overall lending assessment. If you are approved, you will receive a personalised interest rate if your application is successful.
Important: The interest rates stated below are the best offers - each borrower will be assessed for suitability, whereby an interest rate offer will be provided if the loan is approved. This interest rate may be higher than those disclosed below.
Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist, which is ordered on interest rate. Interest rates vary based on each borrower due to the security offered, affordability and an overall lending assessment. If you are approved, you will receive a personalised interest rate if your application is successful.
Best Secured Loans - From 5.03% p.a for 1-5 years
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Please note, Lending Crowd and Squirrel are peer to peer lending platforms - please read our dedicated Lending Crowd and Squirrel guides for information about borrowing.
Secured Loan Alternatives
Whatever your borrowing needs, there are many inexpensive alternatives to secured loans. For large amounts, where you would use your home as security, the options include:
For smaller amounts, you might want to consider:
- Re-mortgaging - If you're mortgage term fixed and it's ending shortly, you may want to consider re-mortgaging and borrow against your home. While the interest rate will almost certainly be lower than a secured loan, the cost of interest can be much higher as you repay the loan over a longer period. For example, if you borrow $20,000 on your home at 3.00% p.a. and repay it over twenty years, the total interest cost is $6,621. However, a $20,000 secured loan at 9.50% p.a. repaid over five years has a total interest cost of $5,202.
- Revolving Credit Mortgage – If you have equity in your home, you may tap into it with the Revolving Credit Mortgage ("RCM"). This revolving account works much like an overdraft. You get access to your home’s equity (i.e. the money you've repaid on your mortgage) and can spend it how you want. The RCM becomes your ‘everyday account’ or the account you pay your bills with, use for daily spending, and even deposit your paycheck in, rather than your bank account. Our Revolving Credit Mortgage guide outlines must-know facts and the latest deals.
For smaller amounts, you might want to consider:
- Unsecured personal loan – if you have a good credit history and can afford repayments without causing any financial hardship, borrowing money without the need to secure a car or other asset could be an option.
- Guarantor loan – a guarantor loan is another type of secured personal loan. The amount you borrow is guaranteed by someone (usually a family member or friend) who promises to repay your loan balance if you stop making payments. The guarantor (usually a parent, friend or sibling) must be aware of the risks – if you fail to make repayments, then the financial consequences can be significant.
- Credit card – if you need to make a one-off purchase, using a credit card can be a more affordable alternative. If you have good credit, you can make the purchase and then arrange a balance transfer to lower the interest rate to anyway from 0% to 6$ for six months to two years. Our guide to balance transfer credit cards covers the best options offered by a number of banks, including BNZ and ASB.
- Debt consolidation loans – if you have a lot of debts spread over many companies, it can be more cost-effective to combine them all into one loan.
Secured Loans - Frequently Asked Questions
Secured loans are not for everyone - our list of common questions anticipates what's important before you decide to apply.
Can I easily get a secured loan?
It depends on your assets, your affordability and how much you plan to borrow. If you’re a high risk, then it’s less likely. Lenders assess many factors before approving or declining a loan – if you’re unsure about whether you will qualify, contact lenders and explain why you want the loan and what security you have. The lender will then ask additional questions to help them assess whether or not they will be suitable for your needs.
Can I get a secured loan with bad credit?
Yes – if you have sufficient security, then it is possible. Before applying, talk to the lender about why you need to borrow so they can best guide you to a suitable loan. Our loans for bad credit guide explains other options.
How do I apply for a secured loan?
The process is simple – you make an application with a lender, which involves providing personal financial details such as income, debts, assets and employment details. The loan will be assessed, and if you’re approved, an interest rate will be offered. If you accept this, the money will be deposited into your bank accounts, and repayments are due per the contract.
Can I pay off a secured loan early?
This depends on the provider. Some lenders allow people to pay their loans off early, which can help reduce your total interest bill, but other lenders will charge you if you try.
Is a secured loan better than an unsecured loan?
Taking out an unsecured loan is less risky and, if something unplanned or unexpected happens down the track, you’re not risking your home or car. However, if you need to borrow a large amount and have absolute certainty that you can repay the loan, then secured loans offer cheaper financing.
What is the best secured loan?
We have listed the top picks for secured loans (above), ordered by interest rate.
What happens if I can't pay back a secured loan?
If you struggle to make repayments, you will need to contact your lender. By applying for a hardship consideration, you can explain your circumstances and work out a more realistic repayment schedule with your lender. The asset you secured will not be sold until all possible avenues are exhausted. If debt and hardship is an issue, our debt help guide outlines the process of making a hardship application, whereby the lender looks at your finances and can freeze your repayments until you are financially stable.
Secured Loans - Our Conclusion
- Secured loans have a lot of benefits, but if you believe there is any chance that you'll be unable to repay, an unsecured loan is, arguably, a lot safer.
- With deposit interest rates at record lows, there is a lot of 'cheap' money available and credit unions and peer to peer lenders are only too eager to lend it.
- If a secured loan isn't for you, there are many alternatives - our guide to unsecured loans has more details.
