Which is the best personal loan: Secured or Unsecured?

Good question and the simplest answer is that the best loan is the loan that is best suited to your individual circumstances and the goods you are purchasing. OK, that may not be the answer you were looking for so we will elaborate by explaining the differences between unsecured and secured loans and where each may be more appropriate or required.

When you’re seeking a loan to buy a car, motorbike, boat, caravan or other major consumer good the loan options are primarily a Secured Loan or an Unsecured Personal Loan. A Secured Loan is the most popular and most commonly utilised. But there are a number of aspects to consider in making the choice and they relate to what you are purchasing, features of each loan type and the suitability to your individual financial requirements and circumstances.

At Jade Finance we offer both Secured Loans and Unsecured Personal Loans and handle every customer’s loan request on an individual basis. Providing a general answer as to which is better is not possible with so many individual factors to be considered.

Secured and Unsecured Personal Loans: Explainer

  • Both loans may be available for the purchase of boats, cars, caravans and motorbikes, depending on individual lender requirements.
  • They have some similarities and some key differences.
  • A Secured Loan is the more popular and depending on your purchase would be known as a Secured Car Loan, Secured Boat Loan, Secured Motorbike Loan or Secured Caravan Loan.
  • With a secured loan, the lender uses the goods you are purchasing, ie car, boat, bike, caravan, as security against the money being borrowed.
  • If the borrower defaults on the loan that is, fails to make the required repayments, the lenders holds the right to take action and repossess the goods to recoup money owed.
  • With an unsecured loan, no security is offered by way of goods, against the money loaned.
  • As an unsecured loan has no security against any goods, it is known as an Unsecured Personal Loan.
  • The reasons why a borrower may not offer the goods being purchased as security against a loan may include that age of the goods (car, boat, bike) is older than the lender will accept as security; the goods may be of a unique/custom/other type or in a condition which is not accepted by a lender as security; and other reasons.
  • With no security offered, an unsecured loan is assessed as a higher risk loan than a secured loan. As such, this type of loan attracts a higher interest rate and may also attracted additional conditions or charges.
  • These higher charges are to cover the lender if the borrower defaults as there is no goods to repossess to recoup outstanding debts.
  • Secured loans feature a fixed interest rate while unsecured loans can have either a fixed or a variable interest rate. The fixed or variable issue would be determined by the lender.
  • Interest rates can fluctuate over time, in this case over the term of the loan and with a higher interest rate as well, the unsecured loan will end up costing more in total than a secured loan.
  • Both loan types have a fixed loan term and the monthly repayments are also fixed.
  • You can make extra payments with both loans.
  • With a secured loan, if you decide to finalise the loan early that is before the end of the fixed term, break fees will apply. These are fees charged by the lender for not completing the loan term of the contract. These fees are usually considered minimal.
  • With an unsecured loan with a fixed interest rate, break fees will also apply. But an unsecured loan based on a variable interest rate will not attract break fees.

When arranging your loan through Jade Finance, the details of your loan will be explained in full and your consultant will be seeking to achieve the best interest rate and most favourable terms and conditions for your loan.

Thinking Points

We’ve laid out the facts but these types of decisions may require you consulting with an independent financial advisor in regard to your individual position.

To get you thinking further on what may be best for you….

  • The decision of secured or unsecured may not end up being yours to make. The lender may decide that the goods you are purchasing – car/boat/bike/caravan – are not acceptable to them as security. Some lenders have guidelines around condition and age of goods accepted as security.
  • Restoration project purchases also require thought. If you’re buying a car or boat or even a caravan which is a ‘renovator’s delight’ then the price you’re paying for it is likely (you hope) to be way less than the value as you proceed through and to completion of the restoration.
  • If you pay a significant deposit on your purchase and your loan is only a smaller percentage of the total purchase price, you may not want the lender to have security over the entire goods.
  • Perhaps you anticipate or know that your financial circumstances are going to improve in a certain timeframe and you can see yourself in a position to finalise the loan early. In such a situation, having no break fees may be an attraction to the unsecured loan.
  • If you want total certainty around your repayments and the cost of the loan and want the cheapest loan and the goods are suitable as security, then the secured loan would likely be your preference.

Whatever you intend to purchase, Jade Finance is interested in providing you with a quote for your loan, so please reach out and start the conversation.

To discuss a loan on a car, bike, boat or caravan contact Jade Finance on 1300 000 008

DISCLAIMER: THE INFORMATION PROVIDED IS FOR GENERAL CONSIDERATION. ANY REFERENCE TO OFFICIAL GOVERNMENT POLICIES HAS BEEN SOURCED FROM AUSTRALIAN GOVERNMENT AND STATE GOVERNMENT SOURCES. NO LIABILITY IS ACCEPTED FOR ANY ERRORS IN PRESENTATION OR INTERPRETATION OF THE FACTS AS PROVIDED BY THESE SOURCES. WE ADVISE ALL INDIVIDUALS AND BUSINESSES TO REFER TO THEIR ACCOUNTANT OR FINANCIAL ADVISOR FOR PROFESSIONAL ADVICE SPECIFIC TO THEIR INDIVIDUAL CIRCUMSTANCES

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