Are renovation loans secured or unsecured?

When it comes to choosing the best renovation loan for your unique circumstances, there’s no one-size-fits-all. Your loan conditions should be tailored to suit your budget and income to help you reach your renovation goals faster. 

Step one is deciding whether to go for a secured or unsecured loan. So, what’s the difference, and how do you know which one is right for you?

Secured renovation loan

If you own an asset, like a car, home or term deposit, you may be able to obtain a lower interest rate with a secured renovation loan. When applying for a secured loan, you agree that if you can’t make repayments, the lender gets to take your asset and on-sell it to pay for the loan.

Lenders offer a lower interest rate for secured loans because they view them as less risky.  Providing an asset to guarantee your loan may also mean you can borrow a larger amount or pay it back over a longer period than you could with an unsecured loan. 

Unsure about whether you have the right assets for a secured renovation loan? Depending on the size of the loan, lenders may allow you to secure your loan with a cash or term deposit, property, vehicles, such as a car, boat or motorbike, and even equipment like farm machinery. Valuable items may also be used as collateral for a loan in some cases, like art and jewellery. 

Keep in mind, the approval process is often longer for a secured loan, with more documents required, and there are more restrictions around how you can use the funds. For example, if you take out a secured renovation loan to purchase a car, the lender may place limits on the minimum value and age of the vehicle being purchased. In some cases, the lender might also restrict you to purchasing a car intended for renovation use only. 

Unsecured renovation loan

An unsecured renovation loan doesn’t require an asset (like a car, or house) to protect the lender. This means you can quickly and easily secure the funds that you need without putting your assets on the line. 

Instead of securing the loan with collateral, the lender looks at your credit history, current debt and your ability to make repayments. The loan is paid back over an agreed period of time, with a renovation loan interest rate. It’s that simple! 

An unsecured renovation loan buys you the freedom to use the funds for almost anything. We’re talking about starting up a business, home renovations, debt consolidation, an overseas holiday, buying a car, or even planning a wedding. 

While some Australian lenders of unsecured renovation loans will provide as much as $70,000 to be paid back over seven years, most will allow you to borrow between $2000 and $50,000, paid back across six months to five years. 

With your renovation assets safely out of the firing line, the lender can’t claim your possessions or the contents of your bank account if you default on the loan. But remember, if you can’t make repayments, your credit rating will be affected. If your lender passes your account onto a collections agency or takes legal action against you, this information is also recorded on your credit report. A low credit score makes it harder for you to obtain loans or credit in the future.

Make an informed choice

It’s a good idea to shop around and compare the offers you receive from different lenders to make sure you’re securing the best renovation loan rate. Getting the best deal on a renovation loan can save you thousands in interest and fees. It’s well worth doing your homework!

When deciding between a secured and unsecured renovation loan, consider the pros and cons. While a secured loan may offer lower interest rates, are you willing to risk the asset that you provide as collateral? 

You’ll never have to worry about losing your assets if you default on an unsecured loan, but it’s likely to come with higher interest rates and your credit rating will take a hit if you can’t make repayments. 

Whether secured or unsecured, a renovation loan should be customised to your unique circumstances so that you can move forward with confidence on your own renovation journey.

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