Secured vs Unsecured Personal Loan: Key Differences

Secured vs Unsecured Personal Loan: Which Is Right for You?

The type of personal loan you choose - secured or unsecured - directly affects the interest rate you pay, how much you can borrow, and the risk you take on. If you can offer an asset as security, you'll almost always get a lower rate. If you'd rather keep things simple and avoid putting an asset on the line, an unsecured loan may suit you better.

This guide breaks down the key differences so you can make an informed decision. For a broader look at current rates, see our best personal loan rates guide.

Quick Comparison: Secured vs Unsecured

Rates shown are the lowest available and depend on your credit history, income, and loan amount. Your actual rate may differ.

What Is a Secured Personal Loan?

A secured personal loan is backed by an asset you own - known as collateral or security. Common types of collateral include:

• A car or vehicle - the most common form of security for personal loans
• Savings or term deposit - some lenders accept cash holdings
• Other registered assets - boats, motorcycles, or equipment

How It Works

When you take out a secured loan, the lender registers a security interest over your asset on the Personal Property Securities Register (PPSR). This gives them a legal claim if you fail to repay. Because the lender's risk is lower, they can offer a more competitive rate.

The best secured personal loan rates currently start from 6.49% - 12.99% p.a. p.a., though your actual rate will depend on your credit profile, income, and the asset you're offering as security. To compare current secured options, visit our personal loans page.

Why Are Rates Lower?

If you default, the lender can seize and sell the asset to recover their money. This safety net means they're more willing to lend at a lower rate and for larger amounts. It's a trade-off: you get a better deal, but you put your asset on the line.

What Is an Unsecured Personal Loan?

An unsecured personal loan doesn't require any collateral. The lender approves you based on your creditworthiness - your credit score, income, employment history, and existing debts.

The best unsecured personal loan rates currently start from 6.19% - 19.99% p.a. p.a., but rates vary significantly depending on your individual circumstances. Check out our credit score guide to understand how your score affects the rates you're offered.

Key Features

• No asset at risk - you won't lose a car or savings if things go wrong
• Faster approval - no asset valuation or PPSR registration needed, so many lenders offer same-day or next-day approval
• Credit-score-based pricing - borrowers with excellent credit get the best rates; those with average credit may pay significantly more

Who Is It Best For?

Unsecured loans suit borrowers who don't have a valuable asset to pledge, need funds quickly, or simply don't want the risk of losing an asset. They're popular for debt consolidation, medical expenses, holidays, and home improvements.

Rate Comparison

Best Secured Personal Loan Rates

Best Unsecured Personal Loan Rates

Why the Rate Gap Exists

Secured loans consistently offer lower rates than unsecured loans because of the reduced risk to the lender. If a secured borrower defaults, the lender can repossess and sell the asset. With an unsecured loan, the lender has no such fallback - they must pursue debt collection, which is more costly and uncertain.

The rate gap typically ranges from 1–4 percentage points, depending on the lender and your profile. Over a 5-year loan, even a 2% difference can save you thousands in interest. Use our personal loans comparison page to see exact figures.

Important: Rates are always ranges. The headline rate is usually available only to applicants with excellent credit, stable income, and a strong repayment history. Always check the comparison rate, which includes fees.

Borrowing Limits

Secured loans generally allow you to borrow more - up to $130,000 with some lenders - because the collateral reduces the lender's exposure. The asset's value effectively sets a ceiling on how much you can access.

Unsecured loans are typically capped at lower amounts. Without an asset backing the loan, lenders limit their risk by restricting the maximum loan size. For smaller purchases or consolidation amounts, this may not matter.

If you're comparing personal loans with other borrowing options, our guide on personal loan vs credit card may also be useful.

When to Choose a Secured Personal Loan

A secured loan is likely the better option if:

• You're buying a car - the vehicle itself serves as security, and you'll benefit from a lower rate. See our car loan vs personal loan guide for more detail.
• You need a larger amount - secured loans allow higher borrowing limits.
• You want the lowest possible rate - pledging an asset gets you a meaningfully better deal.
• You have an asset to offer - a car, savings, or term deposit you're comfortable using as collateral.
• You have a longer repayment term - the interest savings compound over time, making the rate difference even more significant.

Example Scenario

You're purchasing a $25,000 car. By using the car as security, you could access a rate starting from 6.49% - 12.99% p.a. p.a. instead of 6.19% - 19.99% p.a. p.a. unsecured. Over a 5-year term, that difference could save you well over $1,000 in interest - depending on the exact rates and fees.

When to Choose an Unsecured Personal Loan

An unsecured loan could be the better fit if:

• You don't have an asset to pledge - no car, savings, or other qualifying collateral.
• You need money quickly - unsecured loans are often approved within hours, not days.
• The loan amount is smaller - for amounts under $10,000, the rate difference may be modest.
• You don't want to risk losing an asset - if repayment is uncertain, keeping your assets separate from the loan is prudent.
• You're consolidating debt - many unsecured loans are designed specifically for debt consolidation.

For help building a financial safety net before taking on any debt, see our emergency fund guide.

What Happens If You Default

Understanding the consequences of default is critical when choosing between secured and unsecured loans.

Secured Loan Default

1. Missed payments - the lender will contact you and may charge late fees.
2. Default notice - after continued non-payment, the lender issues a formal default notice.
3. Repossession - the lender can seize the secured asset (e.g. your car) under the PPSR registration.
4. Sale of asset - the lender sells the asset to recover the outstanding debt.
5. Shortfall debt - if the asset sells for less than what you owe, you're still liable for the difference.
6. Credit score damage - the default is recorded on your credit report for up to 5 years.

Unsecured Loan Default

1. Missed payments - late fees and contact from the lender.
2. Default notice - formal notice after continued non-payment.
3. Debt collection - the lender may engage a debt collector or sell the debt.
4. Legal action - in serious cases, the lender may pursue court action to recover the funds.
5. Credit score damage - defaults remain on your credit report for up to 5 years, making future borrowing difficult.

Key difference: With a secured loan, you can lose a specific asset. With an unsecured loan, no single asset is targeted, but the lender can still pursue legal avenues to recover the debt. In both cases, your credit score takes a significant hit.

PPSR Registration Explained

When you take out a secured personal loan, the lender registers a security interest on the PPSR. This is a public register that shows other parties (e.g. potential buyers) that an asset has a financial interest attached to it. The registration is removed once the loan is fully repaid.

If you're buying a used car privately, always do a PPSR search first to check whether money is still owed on the vehicle.

Making Your Decision

The right choice depends on your circumstances:

Whatever you choose, compare multiple lenders before committing. Start with our personal loans comparison page or read our best personal loan rates guide for a curated overview of the market.

FAQ

Is a secured personal loan cheaper than an unsecured one?

Generally, yes. Because the lender holds security over an asset, their risk is lower, so they can offer a more competitive interest rate. The exact difference varies by lender but is typically 1–4 percentage points. However, secured loans may also involve additional fees such as PPSR registration and asset valuation costs.

Can I use my car as security for a personal loan?

Yes, a car is the most common form of security for a personal loan in Australia. The lender will register a security interest on the PPSR against the vehicle. You can still drive and use the car, but you cannot sell it until the loan is repaid.

What credit score do I need for an unsecured personal loan?

There's no universal minimum, but most lenders prefer a credit score of at least 500–600 for unsecured loans. Borrowers with higher scores (700+) will qualify for significantly better rates. Check your credit score for free through the major bureaus before applying. Our credit score guide explains how scores work.

Can I switch from an unsecured loan to a secured loan?

Not directly - you would need to refinance by taking out a new secured loan and using the proceeds to pay off the unsecured loan. This can make sense if you've acquired an asset since taking out the original loan and want to access a lower rate. Be sure to factor in any discharge or establishment fees.

What happens to my asset if I pay off a secured loan early?

The lender will remove their security interest from the PPSR once the loan is fully repaid, including any early repayment fees. The asset is then free and clear. Most lenders process PPSR removal within a few business days of final payment.