A secured loan can be one of the more affordable ways to borrow in New Zealand, because offering an asset as security lowers the lender's risk and usually your rate. But security cuts both ways. This guide covers how secured loans work, what you can use as security, how much you might save versus unsecured, and the risks worth weighing before you sign.
What is a secured loan and how does it work?
A secured loan is backed by an asset you own, such as a vehicle or equity in property. If you cannot repay, the lender has the right to take that asset to recover what it is owed. Because this reduces the lender's risk, secured loans typically come with a lower interest rate than unsecured borrowing. Secured loans on our panel start at 8.99% p.a. versus 10.99% for unsecured.
How security lowers your rate
When a lender can fall back on an asset, they price the loan as lower risk. That saving is passed to you as a lower rate, and can also mean access to larger amounts or longer terms than you would get unsecured. The vehicle or asset is registered against the loan on the Personal Property Securities Register until the loan is repaid in full.
Where the headline rate applies
The 8.99% headline is the lowest available rate, offered to applicants with strong credit profiles on secured loans. Your actual rate depends on your credit profile, the loan amount, the term and the asset offered. Most borrowers land somewhere in the middle of the 8.99% to 29.95% range.
How much can security actually save you?
The rate gap between secured and unsecured borrowing compounds over the life of a loan. On a $20,000 loan over 48 months, the difference between a secured rate and a higher unsecured rate can add up to hundreds or thousands of dollars in interest.
Indicative rates. Actual rates depend on your credit profile, loan amount, term and security. Use the calculator on this page for your own scenario.
If you have an asset you are comfortable offering and you can meet the repayments, a secured loan is often the cheaper way to borrow. The saving is real, but so is the risk to the asset.
What are the risks of a secured loan?
The main risk is simple: if you default, the lender can repossess and sell the asset you used as security. That is the trade-off for the lower rate. Before taking a secured loan, be honest about whether the repayments fit your budget through changes in income or circumstances, not just today.
Only borrow what you can comfortably afford, and factor in a buffer for the unexpected. For independent budgeting tools, Sorted has free calculators from Te Ara Ahunga Ora Retirement Commission. Moola is bound by the responsible lending principles in section 9C of the Credit Contracts and Consumer Finance Act 2003 and supervised by the Commerce Commission.
When does a secured loan make sense?
You want a lower rate and have an asset
If you own a vehicle or hold equity in property and want to reduce your interest cost, a secured loan can be a smart move, provided the repayments are comfortable.
You need to borrow a larger amount
Security can support larger loan amounts than unsecured lending, up to $250,000 on our panel, which is useful for bigger goals like major renovations or consolidating substantial debt.
When unsecured might suit you better
If you have no asset to offer, prefer not to put one at risk, or only need a smaller amount, an unsecured loan may be the better fit. Moola matches you across both, so one application covers your options either way.
A secured loan puts your asset at risk if you cannot keep up repayments. Never offer security you cannot afford to lose, and borrow only what fits comfortably within your budget.