Your rights as a borrower when your loan is secured.

Lender gets a legal interest in your property

When you borrow money, the lender sometimes requires the loan to be ‘secured’. This means that if you default on the loan, the lender can repossess and sell specified items of yours (eg your home, car or other personal asset) to recover the debt. With unsecured loans, the lender does not require you to list specific items for security, so if you default on the loan they can’t take any of your possessions.

Secured loans include:

  • credit sales (formerly called hire purchase), ie where you buy products and pay for them later in instalments. The security is the items you bought on finance
  • personal loans secured by one or some of your possessions
  • mortgages, where your home secures the mortgage loan.

To protect their interest, the lender will usually register a security interest in the specified items until you finish paying the loan. This means you can't sell them or give them away.

They may also attach a disabling device, also called an immobiliser, to a property on finance (usually a vehicle). This immobiliser can be activated to disable the vehicle or other device. Activating an immobiliser can only be done under strict conditions and if you have been given reasonable notice in advance.

Also under strict conditions, lenders can repossess your secured items if you don’t make payments.

See also:

The law changes of 6 June 2015 affected security and repossession under a credit contract. It only applies to contracts entered into after that date.

Read the Commerce Commission’s fact sheet on how the changes to consumer law apply to contracts(external link) .

Know your rights

Credit sales, personal loans and mortgages are all consumer credit contracts under the Credit Contracts and Consumer Finance Act (CCCFA). In a consumer credit contract, you are given credit for personal use and have all the consumer protections available under the CCCFA. You are also covered under the Consumer Guarantees Act for rights against the trader or supplier of the products. Sometimes the supplier and the lender may be the same.

When you sign up for a loan or credit sale, the lender must tell you exactly what the cost will be and about any additional charges or fees in a document called the ‘disclosure statement’. They must give you this before the contract is signed for credit contracts after 6 June 2015.

See also:

Essential consumer items can't be used for security

With personal loans, never use items for security that are worth more than the loan itself. Certain essential consumer products cannot be used for security. This includes beds and bedding, cooking equipment, medical equipment, portable heaters, washing machines, refrigerators, travel and identification documents, and bank cards.

The credit contract must list all secured goods item by item, and any replacement goods. The list must be clear and written so that the goods can be easily identified. If lenders try to take excessive security worth a lot more than you borrowed, they may be acting oppressively. If lenders want to add specific items after the date of the loan, you must both agree to change the loan to include those specific items and the lenders must provide disclosure about the change.

Previously, finance companies relied on 'all present and after acquired property' (ALPAAP) clauses to try to repossess your possessions, including those acquired after the loan date. This will be more difficult now.

For all consumer credit contracts, you have five working days to cancel the contract from the date of disclosure. You can also cancel at any time if you have not been given full or accurate disclosure, including of your right to cancel.

Special repossession rules apply to protect you when a lender tries to repossess your consumer goods, if you are in default.

Disabling devices, also called immobilisers, can be attached to consumer products such as vehicles (except for essential consumer items), and are legal if the lender has a security interest in those items. The lender can only activate the device if:

  • you have breached the terms of the credit contract sufficiently to allow for activation
  • you have been given reasonable notice in advance of the activation and told what action you may take to prevent the device being activated
  • despite being given notice, you don’t take those steps.

Lenders provide a consumer service and must provide credit with reasonable care and skill under the Consumer Guarantees Act. If you have a problem with the products, go back to the retailer to get this fixed – but don’t stop your loan repayments.

Read Cancelling your credit contract to find out more.

Lenders also must comply with all the rules under the Fair Trading Act (FTA) and not mislead or deceive you.

If you are having trouble making payments in time and you do nothing, the lender may be able to repossess any items you bought using credit or listed as security for a loan. You need to contact the lender immediately to ask for a change to the terms of your credit contract.

See also:

If you have a problem, you have different options depending on whether:

  • you are struggling with your loan repayments
  • a term of the loan contract is too harsh, or the lender acted unfairly
  • you were given incomplete or inaccurate information before or during the contract
  • there’s a problem with the products.

Contact the retailer or finance company

If the products are faulty, contact the retailer but don’t stop your loan repayments in the meantime, as you may be charged penalty interest.
If there is a problem with payments, contact the finance company as soon as possible to vary or cancel the contract under the Credit Contracts Consumer Finance Act (CCCFA).

If you qualify on grounds of hardship, the lender can agree to:

  • reduce the amount of each payment by spreading payments over a longer period
  • let you take a payment holiday until a future date when you can start paying again.

If your concern or difficulty is not resolved to your satisfaction, you can then contact the Financial Dispute Resolution Scheme(external link)   that your lender belongs to.

Read Loan repayment issues and hardship to find out more. 

Read Resolve a problem to find out more.

Next steps

If you are unable to resolve your issue directly with the bank, retailer or finance company, our Resolve It tool has information to help you take the next steps. These may include going to the Disputes Tribunal or District Court.

Resolve it: Banking, finance and insurance

Resolve it: Faulty products and services

Need more help?

Contact us for more guidance.

The Insolvency and Trustee Service(external link) and Federation of Family Budgeting Services(external link) may also be able to help if you are in financial difficulty.

Common situations

Secured loan

Flynn takes out a personal loan for $5,000 with a finance company and they ask him for a list of his possessions to use as security. They want to include all his household furniture. He gets advice and tells them they can only list specific items that he chooses up to the value of $5,000. Otherwise the security is excessive.

Consumer items can’t be listed

Josh is taking out a personal loan to pay for some renovations to his new apartment. The finance company ask him for a list of household items that will be used as security for the loan. He doesn’t have to include his bed, refrigerator, heaters or oven.