Unsecured vs secured personal loans: What's the difference?

Personal Finance · 05 Dec 2019

Taking out a personal loan can change your life.

Taking out a personal loan can change your life. Having a bit of extra money to fix up your home, buy a new car or take a dream holiday can give you the push you need to live the life you really want to.

If you've never taken out a loan before, there are a few terms you should understand before you apply. One of these is the difference between unsecured and secured loans.

The main difference between unsecured and secured loans

Let's say you want a new car, but you don't have enough money in the bank to get the one you want. You apply for a personal loan and – voila! – you're the proud owner of a new (or new to you) car.

With a secured loan, should you ever fail to make repayments, the loan provider is entitled to the vehicle – even if you've paid for 90% of it.

With other types of secured loans, you may have to provide an asset as collateral in case you can't make repayments. If you want to renovate your home, you might have to put your existing car on the line.

If you get an unsecured loan, you're not risking anything you own or anything you buy.

Restrictions on what you can buy

With a secured loan, there may also be limitations on what you can buy. Using the car example again, there could be restrictions on what type of car you can buy.

Although restrictions change between providers, generally you'll have to buy a new car or one that's only a couple of years old. Some lenders might let you get one that's a bit older, so long as it passes certain tests.

Other restrictions can be put in place by lenders. A popular bank’s Secured Car Loan, for example, is only available to people who want to borrow $10,000 or more and is strictly for cars – no motorbikes, caravans or trucks.

With an unsecured loan, there are no such restrictions. If you need a little bit of money to buy an old runaround car, that's up to you. Unsecured loans allow you to buy what you need, not what someone else tells you that you need.

Using a loan for various purposes

With an unsecured loan, you can generally do what you want. There might be some stipulations – if you get a car loan, it should go towards a car, for example – but you'll have a lot more flexibility.

While a secured loan will likely only be for the amount the car costs, an unsecured loan can give you a bit of leeway. If you need a bit extra to repair or upgrade the car, or to cover your rego, then that can be accommodated.

Fees, interest rates and payback time

Because secured loans have an asset attached to them, they often come with slightly lower interest rates. All other fees are generally similar for both loans.

Unsecured loans tend to have better interest rates than credit cards, which makes them a nice middle ground in terms of borrowing.

Loans also have set dates for paying back money, so you can plan your spending and future budgets accordingly.

Difference in application times

Although processing times vary from lender to lender, as a general rule you'll find that you can get money a lot quicker with an unsecured loan. While it may not be quick enough for an emergency, it could be the difference between getting a car in time for a job interview and having to phone in to cancel.

Unsecured loans through Harmoney

All loans provided on the Harmoney marketplace are offered as unsecured loans. For you, this means there's plenty of flexibility and lots of benefits.

We have a risk gradient that means the interest rate and loan limit are adapted for your personal situation. We don't place restrictions on what you can spend the money on and we'll never take your car, your home or anything you already own.

It's also very quick. Once loan applications have been submitted to our marketplace, most of them are fully funded within 24 hours – and the money is in your account 1-3 business days later.

Other articles you might like:

Four ways to pay off your personal loan faster

What is Comprehensive Credit Reporting?

Learning to love your budget

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