A secured loan involves lenders using a borrower’s personal assets as collateral in the financial agreement.

Taking out a secured personal loan can offer better interest rates on the loan. However, if you’re unable to pay back the loan within the terms of the agreement, then the lender has the right to seize ownership of the agreed assets.

Most of the time, a car or another personal motor vehicle is used to guarantee the loan. Each lender will have their own requirements for the suitability of the type of car that can be used as collateral, but in general, the vehicle must be fully paid off and have a value that is comparable to the loan amount.

Other forms of personal collateral can be property, jewellery, leisure vehicles, art, or investment accounts.

How risky are secured personal loans for borrowers?

To evaluate the risks, you need to work with a broker. Understandably, the risk of losing ownership of a personal asset can be distressing; ultimately it will be a decision you make with a financial advisor on risk vs reward.

As a borrower, consider whether or not you can feasibly afford to make regular loan repayments before committing to a secured personal loan. If it does look financially viable, then a secured personal loan can be beneficial, given there is a lower interest rate and an unsecured loan.

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