What Are Secured Personal Loans? A Guide for Kiwis

Your Comprehensive Guide to Secured Personal Loans in NZ

Kiwis are a resourceful bunch. We find ways to make things happen - whether it's a dream vacation, a home renovation, or covering a surprise medical bill. Sometimes, that means looking for a helping hand in the form of personal loans in NZ.

But it can be tough to know where to start with so many options out there. Enter secured personal loans – a loan option that offers a bit more flexibility and potentially lower interest rates, but with a twist.

What's the "secured" part all about?

Unlike unsecured personal loans, which rely solely on your creditworthiness and income, secured personal loans involve putting up collateral. This collateral can be a car, motorcycle, boat, or even valuable jewellery. You're essentially reducing their risk by offering the lender something of value as security, which can translate to better loan terms for you.

So, why choose a secured personal loan?

There are several reasons why a secured personal loan in NZ might be the right choice for you:

Potentially lower interest rates

With your collateral as a safety net, the lender may be willing to offer you a lower interest rate than an unsecured loan, potentially saving you a significant amount of money over the life of the loan.

Larger loan amounts

If you need a larger sum of money for a bigger project, secured loans often come with higher borrowing limits than unsecured loans. 

More flexible repayment terms

Some lenders may offer more flexible repayment options with secured loans, such as longer loan terms or the ability to skip payments under certain circumstances.

What are the risks of secured personal loans?

But before you jump in and head to a loan company, consider the flip side:

Risk of losing your collateral

If you miss payments or default on the loan, the lender can seize and sell your collateral to recoup their losses. This situation is a major downside, so ensure you're confident in your ability to repay the loan before taking one out.

Potential restrictions on collateral use

While you still own the collateral, the lender may restrict how you can use it during the loan term. For example, you might not be able to travel overseas with a car you're using as collateral.

Impact on your credit score

Missing payments on a secured loan can still damage your credit score, just like with any other loan.

Is a secured personal loan right for you?

Carefully weighing the pros and cons is essential before taking out a personal loan. Here are some things to consider:

Your credit score

If you have a good credit score, you may qualify for a competitive interest rate on an unsecured loan, negating the need for collateral.

The amount you need to borrow

A secured loan may not be worth the hassle and risk if you only need a small amount of money.

Your ability to repay

Be realistic about your financial situation and ensure you can comfortably afford the monthly repayments. You do not want to miss debt collection days!

Doing your research

Before committing to any loan, compare offers from different lenders and carefully read the terms and conditions. Transparency is key, so don't hesitate to ask questions and seek clarification if anything is unclear.

Secured personal loans in NZ can be a valuable tool, but they're not a one-size-fits-all solution. To make an informed decision, you must understand the risks and rewards and carefully consider your circumstances. Kia kaha!