We get it. Choosing a loan can feel overwhelming. Whether you’re buying a car or planning a holiday, loans can look very different depending on the type, the size, and your available spending.

Happily, understanding the key points of secured and unsecured loans is much easier than it seems. Here’s your crash course on the two main types of loans and what they both mean, with key insights from Julia Bentley, owner-operator of MTF Finance Central Otago.

Secured vs Unsecured

As Julia explains, “the interest rates and agreements of any loan are all based on one very important factor – risk. Your lender is looking at the level of risk they take by giving you a loan. The higher the risk, the higher the rates. Secured loans and unsecured loans are the two primary types of financing agreements based on different levels of risk.”

Secured loans are less risky for lenders, so they come with lower rates and fees for the borrower. Secured loans are tied to the asset that you are financing, for example a car or a new laptop. In the worst-case scenario, if you cannot keep making payments on your loan, your lender can repossess that car or asset.


  • Lower interest rates
  • Lower penalty fees
  • There is an asset to sell and so proceeds to apply to the loan if things go wrong


  • If you miss payments, you risk losing your asset

Unsecured loans are negotiated without an asset that the lender can repossess. They are common for loans on holidays, immigration or legal fees, or other expenses that aren’t associated with a physical asset.


  • No risk of repossession


  • Often higher interest rates
  • Higher penalty fees
  • There may be no asset to sell, and so no proceeds to apply to the loan if things go wrong

Which one is better?

Firstly, it’s important to note that every situation is different, and every lending decision is subject to responsible lending inquiries and checks. This means that what works for one person may not necessarily be the best fit for another.

Where it’s possible, a lender is likely to recommend going for secured loans. These are typically secured to vehicles, often (but not always) around three per cent lower than unsecured rates.

Julia says, “We’ll also work with you to make sure that you’re set up with a plan and a timeline that you can repay with confidence while enjoying your new vehicle.”

This is why Julia recommends taking a look at your spending before entering into a loan, to make sure that repayments aren’t going to impact your lifestyle too much. “If you’re spending too much of your earnings each week, then repayments are going to be more difficult. Give that some thought before you speak to a lender – and you’ll enjoy your new vehicle that much more.”

Other risk factors to consider

We’ve seen it all when it comes to financing. For secured loans, a big risk customers face is investing in an asset that still has money owing on it.

Julia warns buyers to look out for cars bought on Facebook Marketplace. She explains, “There are no protections on the platform to check for any outstanding loans on the vehicle. If you end up buying a vehicle that still owes money to a lender, the vehicle can be repossessed and sold without regard to your situation!”

To protect against these situations, whether you’re investing in a car, a jetski, an instrument, or any other purchase, it’s important to work with experienced lenders that have your best interests in mind.

We have a wealth of experience, and we'll help make sure that background checks on your next vehicle take place before you sign on the dotted line.

Julia Bentley, owner of MTF Finance Central Otago

Loans don’t have to be scary, complex, or high-risk

Understanding how they work, and why some types come with different interest rates, is the first step to ensuring you get the best security and support possible.

Keen to learn more ins and outs of loan agreements? All MTF Finance locations nationwide are staffed with specialists who are there to help. Get in touch today, don’t be afraid to ask questions, and together, we’ll find the best option for you.

Offer of finance is subject to terms, conditions, lending criteria, responsible lending inquiries and checks. See the terms and conditions page for details. General information only, not a substitute for tailored advice.