Secured personal loans

If you’re looking for a personal loan to help expedite your next step – towards a holiday, a new car, a used car or a large purchase – you might want to consider the benefits of a secured loan.

While you might associate these loans with a vehicle purchase, they can be much more than that.

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What is a secured personal loan?

A secured personal loan is a term loan or revolving loan that is guaranteed against an asset you own or buy with the loan. Secured personal loan amounts can be as large as R300,000 for terms up to seven years depending on the lender, although with a revolving loan the term can be ongoing.

The security can come in the form of a number of different items, including a car or a property.

Is a secured loan the right option for you?

It’s important to determine whether any type of financial product is right for you before you apply. When it comes to secured personal loans, here are three points to keep in mind:

1. You can manage your repayments. If you find yourself unable to repay your secured loan, the lender is able to repossess the asset you offered as a guarantee to cover its losses.
2. You have an asset to guarantee or are looking to buy one. Lenders will require that you either be looking to buy an asset with your loan (such as a car or home renovations) or that you already have an asset that meets its criteria.
3. You meet the requirements set by the lender. Lenders will have requirements for the guaranteed asset, such as its age or value. For instance, if you’re using a vehicle as security, it may need to be under a certain age.

Pros and cons of secured personal loans

Pros

• Lower rate. These loans are less of a risk for the lender, so they come with lower interest rates.
• Flexible. Unlike car loans, where you have to purchase the vehicle you’re securing the loan for, you can generally purchase whatever you need to with a secured personal loan as long as the amount doesn’t exceed your secured asset’s value.
• Can help you get approved. Offering an asset to secure a personal loan can help you get approved for loans you may not previously have been. This is because the loan is deemed less risky for a lender to take on when there is an asset attached to it.

Cons

• Risk your asset. When you take out a secured loan you are “guaranteeing” your loan with it. While this gives you lower rates, it also means you can lose it if you default on the loan.
• Loan amount tied to your assets value. When you attach your asset to a secured loan it needs to be valued. This value will then be used to determine the loan amount you are offered.

What assets can you secure to a personal loan?

There’s a range of different secured personal loans available, but you will find lenders who let you use the following assets as security for your loan:

• New car. If you’re buying a new car you can generally use it as a guarantee for a secured loan.
• Used car. Lenders will also let you purchase a used car up to 10 years old with a secured loan. However, the cars may need to be of a certain condition.
• Equity in your home. If you own a mortgaged property, you can request an advance to finance a purchase. Common uses for these readvance loans are home renovations.
• High-cost assets. Some lenders are more flexible with the assets they let you use. If you own expensive jewellery, fine art, precious metals, prestige cars or even some antiques, you may be able to secure it against your loan.

Secured personal loan options

You have a few options when it comes to secured personal loans:

• Car loans. These secured loans can be for new or used cars. You can find car loans from most banks and credit unions, as well as dealerships and standalone car loan lenders.
• Readvance loans. These are loans which allow you to reborrow funds you’ve already paid off on your home loan.
• Personal asset secured loans. High-priced assets such as boats, motorbikes and jewellery are accepted by some lenders as a guarantee. Your item or collection of items is valued and then used as security, allowing you to take out the loan you need. You generally won’t find these loans at major banks.

How to compare secured personal loans

• Loan amounts. Find out what loan amounts the lender is offering and if it will match your loan purpose.
• Loan terms. Loans are generally available for terms of between one and seven years depending on the lender.
• Assets you can secure to the loan. Lenders have different requirements when it comes to secured loans. You may not be able to secure the asset you are planning to, so check this before you apply.
• Fees. Check upfront fees such as initiation fees as well as ongoing service fees such as annual or monthly fees. These will add to your costs for the loan.
• Interest rate. How competitive is the interest rate? Compare the rate to other lenders and make sure to check the effective interest rate which will give you a better idea of the true cost of the loan.
• Repayment flexibility. Are you able to repay the loan early without penalty? Can you make additional repayments without being charged? Check this before you apply.

Frequently asked questions about secured personal loans

• What's the difference between a secured personal loan and a car loan?

  A car loan is used specifically to purchase a vehicle. The loan is still secured, but the difference is that the loan amount is restricted to buying the vehicle that will be used as security for the loan. A secured personal loan is where you already own the asset, which can be a car or equity or in your home or something else, and then you use the loan amount for a different purpose.

• What happens if I default on a secured personal loan?

  The lender is able to seize and sell your asset to recoup its losses.

• Why are interest rates lower on secured personal loans?

  Because you have attached an asset to the loan, the lender is taking on less of a risk by lending you money. This is because if you default on the loan, they have a right to the asset you attached to the loan. In exchange for you taking on the risk of attaching the asset to the loan, you get a lower interest rate.