Secured vs unsecured loans

If you've started looking into borrowing, no doubt the words “secured” and “unsecured” have come up. They can sound a bit daunting but the difference is actually pretty simple and it's worth knowing because it affects the rate you're offered, the terms of your agreement and how much you can borrow.

At Armstrong's Finance we can arrange both, so here's the plain-English version: what each one means, when each one works well, and how to find the right fit to suit your needs.

Written by the Armstrong's Finance team. Armstrong's Finance is a New Zealand registered finance broker and Financial Advice Provider, licensed and operating under the Financial Markets Conduct Act 2013, which means we are required by law to act in your best interests. This guide draws on the Credit Contracts and Consumer Finance Act 2003 and guidance from Consumer Protection (NZ).

What is a secured loan?

A secured loan is a loan that is backed by an asset, usually the thing you're buying, like a car, or something you already own, such as property. The lender registers a security interest over that asset, which is simply a legal way of saying it's secured against the loan until the balance is paid off.

For you, the borrower, that security can work in your favour - secured lending tends to come with lower interest rates and often lets you borrow larger amounts over longer terms. Most car finance works this way, with the vehicle itself the security for the loan.

What is an unsecured loan?

An unsecured loan is one where no asset is used as security. So rather than relying on an asset as security, the lender looks at your overall financial position, your income, your regular outgoings and your credit history, and works with you to check the repayments comfortably fit your budget. Most everyday personal loans sit in this category.

Because there's no asset involved, the lender takes on a little more risk and that usually shows up as a slightly higher interest rate than you'd get with a secured loan. The upside is flexibility - you can borrow without putting up your home or another asset, which is why people often use unsecured loans for things like consolidating debt, a holiday, or a wedding.

Secured vs unsecured loans: a quick comparison

Which one is right for you?

It comes down to a handful of things: what you're borrowing for, your financial position, whether you're comfortable using an asset as security and what matters most to you, whether that's a lower interest rate, smaller repayments or keeping fees down.

As a rough guide, it tends to follow what you are buying. Buying a car usually means a secured loan, with the vehicle used as the security for the loan - this is what can keep the rate sharper.

For something like a wedding, an unforeseen medical bill or a holiday, an unsecured personal loan is often the natural fit, with none of your assets used as security. The same goes for rolling a few debts into one - debt consolidation is usually an unsecured loan, and the right structure can bring down what you pay out on credit each month.

What about bad credit?

A patchy credit history doesn't automatically rule you out, but it does shape your options. Because a secured loan gives the lender something to fall back on, secured loans for bad credit are often easier to get approval for than an unsecured loan at the same credit level. 

How Armstrong's Finance can help

We work across a panel of lenders offering both secured and unsecured options, so instead of you taking the first product that comes along, we can line a few up and compare them to find the one that genuinely suits you.

We start with where you're at, what you're looking to purchase, your budget and whether you're open to using an asset as security, then we explain which type of loan fits before recommending anything. 

As a Financial Advice Provider, we're required by law to act in your best interests and all lending is subject to responsible lending criteria under the Credit Contracts and Consumer Finance Act 2003, so any recommendation has to be both suitable and affordable for you.

Frequently asked questions

Is a car loan secured or unsecured?

Most car loans are secured, with the vehicle itself acting as the security. This is what allows the lower interest rates car finance can be known for. Some lenders offer unsecured car loans, but they typically come with a higher interest rate. It pays to check which type you're being offered.

Can I pay off a secured loan early?

Yes, you can, and paying a loan off early can save you on interest. Some loans have a small fee for early repayment, so it's worth a quick look at the terms - we can help when you arrange your finance with us.

What happens to my asset if I can't pay a secured loan?

If things go wrong and the loan goes into default, the lender can repossess and sell the asset to recover the debt, but only where the contract allows it, the item is named as security, and after they've given you proper written warning. The CCCFA sets strict rules around repossession, so it's not something that can happen without notice.

Can I get a loan with bad credit?

A bad credit score tends to mean fewer lenders are available and interest rates could be higher, rather than a flat no. Some lenders weigh your current income and stability more heavily than past blips. Because we deal with a range of lenders, we can point you toward those most likely to say yes, so you're applying where you've got the best chance to secure your loan.

A final word

Choosing between a secured and unsecured loan isn't really about which one is better on paper; it's about which one fits what you're doing and what you're comfortable with. 

Disclaimer: This guide is intended for general informational purposes only and does not constitute personalised financial or legal advice. It does not take into account your individual financial situation, objectives or needs. Information is current as at June 2026 and may change as the law is amended. We recommend you seek independent advice before entering into any credit contract. For independent information on borrowing, visit sorted.org.nz.

Armstrong's Finance is a New Zealand registered finance broker and Financial Advice Provider, operating under the Financial Markets Conduct Act 2013. We work across a group of lenders. All lending is subject to lender credit criteria, terms and conditions.