If you’re struggling to juggle multiple debts, consolidating them into one loan might help you find your financial balance. 

Making one regular repayment on a single loan, rather than many spread across various products –  perhaps car finance, credit card debt, and personal loans – could save a person hundreds or thousands of dollars by reducing the amount of interest they’re paying overall. It could also take some of the pressure off, as they only need to plan for a single repayment. 

Consolidation could prove incredibly valuable for someone struggling to take control of their debts. But there is one major decision anyone considering a debt consolidation loan needs to ponder: Whether to apply for a secured or an unsecured loan. 

Debt consolidation loans are typically personal loans taken out with the intent to use the loaned money to pay off existing debts. If a person owns a home, they might consolidate their debts into their home loan by refinancing, as home loans generally offer lower interest rates than other finance products. However the longer terms on home loans generally mean more interest is paid in the long run.

What is a secured debt consolidation loan?

A secured loan, whether it be a personal loan, car loan, or home loan, is a loan taken out using another asset as collateral. 

Let’s take a car loan for instance. A car loan might see the vehicle purchased used as security against the loan. If a borrower fails to meet their repayments, the lender might repossess the car to cover its losses. In the case of debt consolidation, a borrower might secure their loan against a car, house, or another valuable asset like jewellery, precious metals, artwork, or even cash in a term deposit.

A secured loan typically offers lower interest rates than an unsecured loan. That’s because secured loans generally represent a lower risk to lenders as they can recoup some or all of their losses by repossessing the asset used as security. 

However, consolidating debt into a secured loan could put a borrower at risk of losing something of value if they fail to meet their repayments. You might also not have an asset deemed worthy enough by the lender to collateralise the loan.

What is an unsecured debt consolidation loan?

On the other hand, an unsecured debt consolidation loan doesn’t demand a borrower hands over a prized (or at least valuable) possession if they default on their repayments. 

For that reason, a borrower might view an unsecured loan as a lower risk finance product than a secured loan. Though, as a lender typically takes on more risk when handing out an unsecured loan compared to a secured loan, they generally come with higher interest rates.

That means an unsecured debt consolidation loan could prove more expensive over the longer-term than its secured counterpart. 

It’s also worth noting that a lender will still likely chase a borrower for their outstanding loan balance if they fail to make their repayments – perhaps even taking them to court. 

Lenders offering some of the lowest-rate secured personal loans

FixedSecuredN/AMore details

Secured Green Personal Loan

    VariableSecuredN/AMore details

    Online Personal Loan Package

      VariableSecuredN/AMore details

      Secured Residential Estate Personal Loan

        FixedSecuredN/AMore details

        Secured Personal Loan Fixed

          FixedSecuredN/AMore details

          Personal Loan Secured

            Important Information and Comparison Rate Warning

            All products with a link to a product provider’s website have a commercial marketing relationship between us and these providers. These products may appear prominently and first within the search tables regardless of their attributes and may include products marked as promoted, featured or sponsored. The link to a product provider’s website will allow you to get more information or apply for the product. By de-selecting “Show online partners only” additional non-commercialised products may be displayed and re-sorted at the top of the table. For more information on how we’ve selected these “Sponsored”, “Featured” and “Promoted” products, the products we compare, how we make money, and other important information about our service, please click here.

            The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless indicated otherwise. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

            Monthly repayment figures are estimates only, exclude fees and are based on the advertised rate for the term and for the loan amount entered. Actual repayments will depend on your individual circumstances and interest rate changes.

            Rates correct as of December 5, 2023.View disclaimer

            How to choose between a secured or unsecured loan

            There are plenty of factors to consider when choosing between a secured or unsecured debt consolidation loan. Some of the major things worth considering are:

            Interest rates

            One of the biggest things to consider when choosing a finance product is the cost. In the case of debt consolidation loans, much of the cost will come down to interest rates. 

            Take two similar debt consolidation loans for example: one with a 5% interest rate and another with a 10% interest rate. 

            If a borrower were to take out a $10,000 loan over a five year term, the loan with a 5% interest rate would see them paying around $1,320 of interest in total. If they were to sign up to a loan with a 10% interest rate, however, their total interest bill would come to nearly $2,750 – $1,430 more.

            It’s also worth noting a borrower taking out a personal loan might face fees such as establishment fees, monthly fees, early repayment fees, or missed repayment fees. Many such fees are factored into the comparison rate advertised by lenders. 

            See Also: InfoChoice Personal Loan Calculator

            Credit history

            As secured loans are generally less risky for lenders, they might be more accessible for a person with a less-than-ideal credit score. That’s because if a borrower misses their repayments on a secured loan, the lender will be able to repossess a valuable asset, thereby potentially covering their losses.

            On the other hand, if a borrower has a poor credit history, a lender might refuse to provide them with an unsecured loan, or offer them a higher interest rate, lest they fail to meet repayments. 

            Risk of repossession

            Another major factor to consider when tossing up between a secured or unsecured loan is the risk of repossession. No doubt most borrowers intend to repay the loans they take out. However, life might get in the way at times, particularly if a person is already heavily indebted. 

            With that in mind, if you’re not certain you can meet your repayments and would loathe losing your car, property, or another asset to a bank or lender, you might want to think hard about whether a secured loan is right for you.

            Speed and ease of application

            The process of getting a secured loan might take some time, while signing up for an unsecured loan is typically a much faster process with less leg-work needed on the borrower’s behalf. 

            When considering lending to someone putting up an asset as collateral, a lender might take extra time to consider the value of the asset in case it later needs to repossess the item. 

            If a borrower was putting up a valuable piece of jewellery as collateral, for instance, the lender might want to have it independently valued, and maybe even insured. Or a lender might reject the use of a 10-year-old car as security, since its resale value mightn’t meet its standards, after a borrower has spent precious time filling out application forms. 

            Be wary however of lenders offering ‘FAST’ loans as their primary selling point; they are likely payday loans. These loans and lenders generally have very short terms of less than 62 days and are not required to adhere to the National Consumer Credit Protection Act of 2009 i.e. responsible lending laws. The end result is that they could charge incredibly high fees and interest rates, and aren’t required to see if you’re suitable for the loan or offer hardship arrangements if you fall behind.

            Income and serviceability

            An unsecured loan might also demand a sizable and secure income to service it. Particularly, since a lender potentially stands to lose out if a borrower can’t meet their repayments. Thus, if your income is low, or you work part-time or casually, you might find yourself ineligible for an unsecured debt consolidation loan.

            Use of funds

            As mentioned above, debt consolidation loans are often personal loans taken out to pay off multiple debts. However, if you take out a secured loan, the lender might demand you use the cash for a particular purpose. In such cases, it’s probably worth asking whether you can use the funds to pay off your debts, thereby incorporating multiple loans into one. 

            Unsecured loans, on the other hand, typically don’t come with stipulations on how you can use the funds.

            Fixed or variable

            Finally, most people taking out a loan – whether it be to consolidate debt, to buy a car, or pay for a fancy holiday – will likely have to choose between signing up for a fixed interest or variable rate offering. 

            As the names suggest, a fixed interest loan will see a borrower paying back their borrowings on a fixed interest rate. Meanwhile, the interest rate on a variable loan could shift and change over the months and years. 

            Pros and cons of secured and unsecured debt consolidation loans

            There are advantages and disadvantages of taking out a secured loan over an unsecured loan when consolidating debts. Here are just a few:

            Secured debt consolidation loan: The good and the bad



            Typically offer lower interest rates, potentially saving a borrower cash

            The asset used as security could be repossessed if a borrower fails to make repayments

            Potentially more accessible for those with an average credit history 

            Longer application process, particularly as a lender might want to value a borrower’s collateral

            By securing a loan, a person may be able to borrow a larger amount

            There might be restrictions on how you can spend funds borrowed through a secured loan – thus, certain products may not be suitable for consolidated debts

            Those with erratic or lower incomes might find it's easier to get approval for a secured loan over an unsecured loan

            Early repayment fees might apply if a borrower pays back their loan faster than expected

            Unsecured debt consolidation loans: Benefits and disadvantages



            Unsecured loans don’t pose a risk that a borrower’s property could be repossessed 

            Generally come with higher interest rates, potentially making an unsecured loan more expensive over its life

            Can offer a simpler application process and potentially a shorter wait time

            An unsecured loan might be harder for those with poor credit histories to obtain. Failure to pay the loan could result in civil proceedings in court.

            A borrower can often use funds borrowed through an unsecured loan however they wish – potentially making some products more suitable as debt consolidation loans

            People working part-time or casually might find it harder to get approval for an unsecured loan

            Don’t be afraid to reach out for help

            If you’ve found yourself in over your head when it comes to debts, there are many services out there to help. Reaching out for support and financial advice might prove invaluable. 

            Further, using a personal loan to consolidate debts is far from a silver bullet solution. In fact, it could lead to more financial pain – particularly if one continues to reach for their credit card or other loans after doing so.

            If you feel like you’re in need of support, a financial counsellor could help you to go over your options and find a tailored solution. You can also contact your lender – it might be able to help you through financial hardship. Finally, you can reach out to the National Debt Helpline if you’re in need of assistance.

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