Secured and unsecured personal loans – what’s the difference? 

Does marketing things at NOW Finance

When shopping for personal loans, borrowers will often see the terms “secured” and “unsecured” used to describe a loan. And often they have different interest rates and available loan amounts. Why is that and how can you choose what is right for you?


So, what is an unsecured loan? 

Unsecured loans are provided by a lender (like NOW Finance) to a borrower, without an asset used as collateral to protect the borrower against missed repayments or defaults. If a repayment is missed or the loan goes into default, the lender has limited recourse to recover the amount owing. This increases the risk to the lender, who will often charge a higher interest rate and limit the maximum loan amount to offset this risk.


And a secured loan? 

Unlike an unsecured loan, for a secured loan an asset is used as collateral to secure the loan, giving the lender the ability to seize and sell the asset as a means of repaying the loan if necessary. As this lessens the risk to the lender, secured loans generally have a lower interest rate and can be used for loans of greater amounts. For example, at NOW Finance, with our unsecured loan, the most a customer can borrow is $50,000, however, with our secured loan customers can borrow up to $100,000.


What are the main differences between secured and unsecured loans? 

Aside from the differences in terms of what each loan type means, there are two other major differences between secured and unsecured loans: 

The combination of these factors means that if you are considering applying for a secured loan, it may allow you to borrow more funds, potentially at a lower rate.


Is a secured loan different to a car loan? 

Yes, a secured loan can be used for a variety of loan purposes, including the purchase of a car. However, a car loan can only be used to buy a car and depending on the specific lender, may come with other limitations such as the age of the vehicle and a balloon payment at the end of the arrangement. 

One of the benefits of using a secured loan to buy a car is that you can spend your secured loan on other things too. So, if you’re looking for a car but it’s time for a holiday or getting around to planning some much-needed home improvements, you can take out a bigger loan and take care of these needs at the same time.


What else should I consider? 

On the face of it, it might seem like taking out a secured loan rather than an unsecured loan is an easy decision. You can borrow more at a lower rate of interest. However, the big consideration you need to make is whether you could afford to lose the car in the event of not keeping up with repayments on the loan. 

Taking out a secured loan may be cheaper and a more attractive deal, but what would happen if you couldn’t keep up with repayments and were to lose the car? If you rely on your car to get to work or for other aspects of your life, you could lose a lot more than just the car.


Which option is best for you? 

Consider your circumstances and all the points we’ve looked at in this guide before deciding whether a secured or unsecured loan is best for you. 

If you decide to go ahead, NOW Finance also offers joint personal loans that you and your partner can co-apply for, which may also help you with your borrowing capacity and get the funds you need for your next big move. 

Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product. The information in this article is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may affect the accuracy of the information 

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