What is a secured loan?
Secured loans use an asset (usually a motor vehicle) as collateral for the loan. The asset provides extra certainty that the borrower will repay the loan. This usually allows the lender to offer a lower interest rate. Secured loans in NZ don’t require the borrower to actually hand over the asset. But the lender registers a security interest over it. The registration is all done electronically via the Government managed PPSR. Using the PPSR database lenders can keep a record of the security for the loan, and once it’s repaid they release their interest in the asset. After their interest is released the borrower has clear title of the asset and it’s exactly like it was before they got the secured loan.
Do secured loans get low interest rates?
A secured loan is generally offered with a lower interest rate. This is because the lender has a ‘safety net’ so there’s less risk that the loan won’t be repaid. The lower risk should see the borrower get a lower interest rate. However all lenders are different and it’s always important to research how a specific lender sets their interest rate. At Pronto we reward good customers with lower annual interest rates through our client rating technology. And you can see the different costs of borrowing throughout our website. As always it’s also a good idea to compare various lenders and get independent legal advice before entering any contract.
What assets can you use for secured loans?
Each lender has different criteria. With Pronto loans we only use motor vehicles as security. They do need a current WOF and registration and can’t already have money owing on them.
What are the risks with secured loans in NZ?
By offering an asset as security, the borrower is taking a risk. They should are rewarded with a lower interest rate, but this does depend on the lender. The major risk to the borrower is that if they don’t repay their loan, the asset they offered as security can be repossessed. Every loan is different, and different lenders have different policies. The New Zealand Government does have a strict set of rules regarding repossession. When you get a secured loan, your contract will have a disclosure statement and loan agreement explaining the details surrounding this. For Pronto loans you can see a copy of our standard credit contract and disclosure statement here. If you’ve got questions about how repossessions work the Commerce Commission has some really useful information here. And there are always organisations such as the Citizens Advice Bureau who can offer useful advice. Each lender is also a member of a disputes resolution scheme (ours is FSCL and you can view their details at www.fscl.org.nz), with their contact details also included in your loan contract.