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What's the Difference Between a Secured and Unsecured Personal Loan?

  • Writer: Harmoney
    Harmoney
  • Sep 9
  • 3 min read

Updated: Sep 12


When you’re looking to borrow money, you'll hear the terms "secured" and "unsecured" personal loans. Understanding the key differences is crucial, as the choice you make will affect the interest rate you get, the amount you can borrow, and the risks you face.


The main difference is simple: a secured loan is backed by one of your assets (like a car or property), while an unsecured loan is not.


What is an Unsecured Personal Loan?

An unsecured loan is a loan that is given to you based on your financial history and your ability to repay it, not on any asset you own. Because there is no collateral, lenders rely on your credit score and financial health to approve the loan.


  • Risk to you: No risk of losing a specific asset if you can't make your repayments.

  • Flexibility: You can use the funds for almost any purpose, such as debt consolidation, a wedding, or a holiday.

  • Application: The application process is often faster and simpler because no asset valuation is required.


At Harmoney, we specialise in providing unsecured personal loans. This means you can borrow what you need without putting your car, boat, or property on the line.


What is a Secured Personal Loan?

A secured loan requires you to use an asset you own as collateral. The lender places a security interest on the asset, and if you fail to make your repayments, the lender has the right to repossess and sell that asset to recover the debt.


  • Risk to you: You can lose the asset you used as security if you default on the loan.

  • Interest Rate: Secured loans often come with a lower interest rate because the collateral reduces the risk for the lender.

  • Borrowing Amount: You may be able to borrow a larger amount, often tied to the value of the asset you provide as security.


Common examples of secured loans include mortgages (where your home is the collateral) and car loans (where the car itself is the collateral).


Secured vs. Unsecured Loans: At a Glance

Feature

Unsecured Personal Loan (Harmoney)

Secured Personal Loan

Collateral

Not required.

Required (e.g., car, property).

Risk of Repossession

None.

High. The asset can be seized if you default.

Interest Rate

Typically higher than secured loans.

Often lower due to reduced risk to the lender.

Borrowing Amount

Generally smaller, based on affordability.

Can be larger, based on asset value.

Application Process

Faster and simpler, with less paperwork.

Can be more complex, requiring asset valuation.

Things To Consider

Whether a secured or unsecured loan is right for you depends on your individual financial situation, risk tolerance, and borrowing needs.


You could choose an unsecured loan if:

  • You don't want to put your assets at risk.

  • You need a fast, simple online application process.

  • You are borrowing for a purpose that doesn't involve a specific asset (e.g., debt consolidation, travel, or a wedding).

  • You have a good credit history and a stable income to support the repayments.


You could choose a secured loan if:

  • You need to borrow a very large sum of money.

  • You are comfortable with the risk of losing your asset.

  • You have a lower credit score and need to offer security to get approved.


For many New Zealanders, an unsecured loan is the perfect solution for everyday borrowing needs. It offers flexibility and peace of mind, knowing that your assets are safe.



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