Secured vs Unsecured Personal Loans: What's the Difference?

A secured personal loan uses an asset like a car or term deposit as collateral, while an unsecured personal loan requires no security at all. The trade-off is cost: secured personal loans average 9.38% p.a. in Australia compared to 10.32% for unsecured (April 2026), and the gap widens sharply for borrowers outside the top credit tier. On a $20,000 loan over five years, that average-rate difference alone costs an extra $536 in interest.

How a secured personal loan works

When you take out a secured personal loan, the lender registers a charge against your asset on the Personal Property Securities Register (PPSR). That registration, which costs the lender around $6.80 per asset, prevents you from selling the asset until the loan is repaid. If you stop making repayments, the lender can repossess and sell the asset to recover their money after issuing a default notice under the National Credit Code.

The collateral changes the lender's risk calculation. If a $20,000 loan is backed by a car worth $25,000, the lender loses little even in a worst-case default. That lower risk is why secured rates start from 5.67% p.a. for strong applicants with newer vehicles.

What assets qualify as security

The asset must hold enough value to cover the loan amount. Lenders value vehicles using industry tools like Glass's Guide or RedBook, not the seller's asking price. Older assets attract lower loan-to-value ratios because they depreciate faster, increasing the lender's risk.

How an unsecured personal loan works

An unsecured personal loan relies entirely on your creditworthiness, income, and spending patterns. There is no asset at risk, which means the lender's only recourse if you default is legal action, debt collection, and credit reporting. This makes unsecured loans faster to arrange (no asset valuation, no PPSR registration) but more expensive to compensate for the higher risk.

Unsecured personal loans in Australia range from $2,000 to $75,000, with terms from one to seven years. Rates span from 5.76% p.a. for excellent credit to 35.99% p.a. for high-risk borrowers. The average sits at 10.32% p.a., roughly 1 percentage point above secured loans at the headline level. Most lenders offer same-day or next-day funding because there is no asset verification step.

Side-by-side comparison

Monthly repayment comparison

The table below shows what you would actually pay each month on common loan amounts at average secured and unsecured rates. These figures assume fixed rates and no fees.

At average rates, the monthly difference looks small. But the real gap appears with below-average credit, where secured rates might be 14% while unsecured rates hit 25% or higher. On a $20,000 loan over five years, that gap balloons from $9 per month to over $100 per month. See our guide to personal loans with bad credit for rate ranges by credit tier.

How your credit score changes the equation

For borrowers with excellent credit, the rate gap between secured and unsecured is negligible, less than half a percentage point. The decision is mostly about convenience. But as credit scores drop, unsecured rates climb much faster than secured rates because lenders without collateral are taking on more risk with no fallback.

Around 14% of adult Australians, over two million people, have a below-average credit score. For this group, a secured loan is not just cheaper, it may be the only way to access a rate under 20%.

When to choose secured

A secured loan makes financial sense when you own a qualifying asset (particularly a vehicle under 10 years old), you are borrowing $10,000 or more where the interest savings become meaningful, your credit score is average or below and you need a lower rate to keep repayments manageable, or you want to maximise your borrowing limit since lenders offer higher amounts against collateral.

The risk is real though. If your financial situation changes and you cannot maintain repayments, you lose the asset. For a car you rely on for work, repossession can cascade into job loss and further financial stress. Lenders must follow the National Credit Code process and give you 30 days to catch up after a default notice, but repossession is a genuine outcome.

When to choose unsecured

An unsecured loan works better when you do not own a qualifying asset or do not want to put one at risk, you are borrowing under $10,000 where the interest difference is under $300, you need funds quickly and cannot wait for asset valuation, or the loan purpose does not create a secureable asset. Common unsecured purposes include debt consolidation, medical expenses, home improvements, and travel.

Unsecured loans carry no restrictions on how you use the funds. Secured loans often tie the asset to the loan purpose: a car loan must be used to buy the car that secures it. For general purposes, unsecured loans provide more flexibility. Australians borrowed $9.3 billion in personal loans in the September quarter of 2025 (ABS), and the majority were unsecured, reflecting this preference for flexibility.

What you need to apply

Both loan types require proof of identity (driver's licence or passport), proof of income (two recent payslips, tax returns, or 90 days of bank statements), and a summary of your existing debts and living expenses. For a secured loan, you also need the asset details: registration number, make and model, year of manufacture, and odometer reading. The lender values the asset using Glass's Guide or RedBook.

Using a finance broker avoids multiple credit enquiries. The broker matches your profile to the right lender before lodging, rather than sending applications to several lenders and accumulating hard enquiries on your credit file.

This article is general information only and is not financial advice.