When it comes to borrowing money, you’ll often come across two main types of personal loans: secured loans and unsecured loans. Understanding the differences between them is important before making a borrowing decision. The comparison of secured loan vs unsecured loan isn’t about which one is better overall—it’s about knowing how each type works, so you can decide which option fits your situation.
In this guide, we’ll break down what each type of loan means, their key features, and what to keep in mind when comparing them. That way, you’ll have the information you need to weigh up your options and choose what works for you.
Overview:
- What a secured personal loan is and how it works
- What is an unsecured personal loan?
- Which is best?
- FAQs
What is a secured personal loan?
A secured personal loan is a loan that is backed by an asset you own, such as a car, boat, or property. This asset acts as “security” or collateral. Essentially, you’re agreeing that if you don’t repay the loan, the lender can take the asset to recover the money owed.
Because there’s less risk for the lender, secured loans often come with:
- Lower interest rates compared to unsecured loans
- Higher borrowing limits, since the asset adds security
- More flexible approval, even if your credit history isn’t perfect
In New Zealand, many people use secured personal loans for expenses such as emergency car repairs, urgent bills, or debt consolidation.
What kind of asset can I use to secure a loan?
Not every asset is accepted as collateral. Most lenders prefer assets that hold value and can be sold if needed. Common examples include:
- Vehicles: cars, motorbikes, or boats are the most common.
- Property: homes or investment properties can sometimes be used.
- Savings or term deposits: certain banks may allow this.
The asset usually needs to be in your name and owned outright (or close to). For example, if you’re still paying off a car loan, that car usually can’t be used as security.
What credit score is needed for secured loans?
Because secured loans are tied to an asset, lenders are generally more flexible about credit scores. While a higher score will always help, many borrowers with lower scores can still qualify for secured loans.
This makes them a common choice for people who may not meet the criteria for an unsecured loan. At Swoosh, we look at more than just your credit score. We specialise in bad credit loans and believe everyone deserves a fair go when it comes to accessing finance.
Do secured loans hurt your credit?
A secured loan can affect your credit score in the same way any loan could—it depends on how you manage it:
Positive impact: making repayments on time can improve your credit score over time.
Negative impact: missing payments can damage your credit and could result in repossession of your asset.
So, a secured loan won’t automatically hurt your credit, it’s the repayment behaviour that makes the difference.
Are secured loans easy to get approved?
Generally, lenders may be more likely to approve secured loans than unsecured loans, since there’s an asset backing the loan. However, approval still depends on meeting New Zealand’s responsible lending requirements, including demonstrating that you can reasonably afford the repayments.
Can you use a secured loan for anything?
In most cases, yes. Secured personal loans can be used for:
- Buying or repairing a car
- Medical expenses
- Home improvements
- Travel or weddings
- Debt consolidation
Some restrictions may apply, for example, loans can’t be used for gambling or speculative investing.
How much can you borrow with a secured loan?
How much you can borrow can vary depending on a number of factors, such as:
- The purpose of the loan
- Your individual circumstances (like your credit score)
- The value of your asset
- The policies of the lender
If you’re thinking about applying for a secured loan in the future and want to improve your borrowing power, here are a few things that may help:
- Maintain a good repayment history: Keeping up-to-date with your existing repayments can demonstrate reliability to lenders.
- Reduce outstanding debts: Paying down existing debts can strengthen your overall financial position.
- Consider the value of your asset: Higher-value assets may support larger loans.
- Provide accurate and complete information: Ensuring your application is thorough helps lenders assess your circumstances fairly.
Who is eligible for a secured loan?
Every lender will have their own eligibility criteria, so it’s important to check directly before applying. Generally, most lenders require you to:
- Be 18 years or older
- Be a New Zealand citizen or permanent resident
- Have a stable income (from employment or benefits)
- Own a qualifying asset
At Swoosh, we keep things simple. If you’re 18 or older, a New Zealand permanent resident, employed for at least three months earning $400 per week, and have a vehicle registered in your name to use as security, you could be eligible for a secured loan with us. We specialise in helping people get access to finance, even with bad credit, and believe everyone deserves a chance to get ahead.
What is an unsecured personal loan?
An unsecured personal loan doesn’t require any collateral. Instead, lenders typically base their decision on your credit history, income, and ability to make repayments.
Common features of unsecured loans include:
- No asset at risk if you default
- Higher interest rates compared to secured loans
- Stricter approval criteria, especially for those with lower credit scores
These loans are often used for smaller borrowing amounts or by people who don’t want to tie an asset to the loan.
What can you use an unsecured loan for?
Similar to secured loans, unsecured loans can be used for a wide range of personal expenses — from covering medical or dental bills to funding holidays, weddings, home renovations, or car repairs. Because they don’t require collateral, borrowers often use them for smaller, short-term needs or when they don’t own an asset to secure against the loan. However, unsecured loans usually come with higher interest rates and stricter eligibility criteria, since they pose more risk to the lender.
Who is eligible for an unsecured loan in NZ?
Eligibility for an unsecured loan is usually stricter than for a secured loan due to the increased risk to the lender. Lenders will typically require:
- A good credit history (generally a score in the “fair” to “excellent” range)
- Steady, verifiable income
- New Zealand residency or citizenship
Because there’s no asset involved, lenders rely more heavily on credit and income records.
Do unsecured loans hurt your credit?
Taking out an unsecured loan won’t automatically hurt your credit. In fact, making repayments on time can help build or improve your credit score over time. However, missing payments, defaulting, or applying for multiple loans in a short period can negatively impact your credit rating. Like any loan, responsible borrowing and consistent repayments are key to maintaining good credit health.
How much can you borrow with an unsecured loan?
Unsecured loans typically come with lower borrowing limits than secured loans, as they present more risk to the lender. They may also have higher interest rates for the same reason. However, both the borrowing limits and the rates vary depending on the lender and your personal financial circumstances. Because of this, it’s important to compare loan options carefully and understand the terms offered, so you know exactly what you’re agreeing to before making a decision.
Secured vs unsecured: which is best?
When it comes to choosing between a secured loan and an unsecured loan, there’s no one-size-fits-all answer. Both come with their own pros and cons, and the right option really depends on your situation and what you’re comfortable with.
Secured loans often mean you can borrow more and get a lower interest rate, but you’ll need to put up an asset (like a car) as security. That also means the asset could be at risk if the loan isn’t repaid.
Unsecured loans don’t require an asset, which can make things feel simpler, but they usually come with higher costs and stricter eligibility requirements.
The best way forward is to weigh up the features of each and think about how they fit with your own circumstances. That way, you can feel confident in choosing the type of loan that works for you.
Ready to apply? Swoosh has you covered!
We offer fast, online applications and flexible secured personal loans designed to suit a wide range of Kiwis. With loan amounts starting from $2,000 up to $5,000, we’re here to help when you need a financial boost. Apply online today and get a quick decision with friendly service from a trusted New Zealand lender.
FAQs
Can I pay off a secured loan early?
It can be possible to pay off a secured loan before the end of the term. However, some lenders may charge an early repayment fee, so it’s a good idea to check the terms with your lender first.
How do I know if a loan is secured or unsecured?
Check the loan terms. If an asset is listed as security, it’s a secured loan. If not, it’s unsecured.
Is it harder to get a secured loan?
While loan approval is never guaranteed with any loan, many borrowers find secured loans easier to access, since the asset lowers the lender’s risk. However, lenders will still look at factors like your income, credit history, and ability to repay.
