Secured vs unsecured personal loan: what’s the difference?
It comes down to what the lender can fall back on. With a secured personal loan, you offer an asset as security, and the lender holds an interest in it until the loan is repaid. With an unsecured personal loan, nothing is attached — the lender relies on your income and track record.
In practice, the asset is usually the thing you’re buying. Finance a used dual cab and the dual cab secures the loan. The lender’s interest is also registered on the Personal Property Securities Register (PPSR), which is how a future buyer can check whether money is still owing.
| Secured personal loan | Unsecured personal loan | |
|---|---|---|
| Backed by | An asset, like a car, caravan, boat or term deposit | Nothing — your income and credit history |
| Typical uses | Buying a car, van, boat or bike | Holidays, weddings, medical bills, renos, debt consolidation |
| Pricing | Often sharper, because the lender’s risk is lower | Often higher, to reflect the extra risk |
| How much | Can be larger, linked to the asset’s value | Usually more modest, linked to your income |
| Paperwork | Asset details needed, such as VIN, rego or invoice | No asset details; the focus is your finances |
| Speed | Can take a little longer while the asset is checked | Often quicker once your finances are verified |
| Restrictions | Lenders may set age or condition limits on the asset | Use it for almost any legitimate purpose |
| If you can’t repay | The asset can be repossessed and sold | Fees, a default listing and possible legal action |
Is a secured loan cheaper?
Often, but not always. Because the lender can recover some of its money by selling the asset, a secured loan carries less risk for them, and lenders tend to reflect that in a sharper rate.
The rate isn’t the whole story, though. Fees, the loan term, whether there’s a balloon payment and your own credit profile all shape what you actually pay.
- Stretching the term shrinks each repayment, yet you’ll generally hand over more interest in total.
- A newer asset often attracts better pricing than an older one.
- A strong credit history can narrow the gap between secured and unsecured pricing.
- Fees and early payout terms vary, so compare the whole contract, not just the headline.
What can be used as security for a personal loan?
Lenders want security that holds its value, is easy to identify and can be sold if needed. Vehicles tick all three boxes, which is why they’re the most common choice.
- Cars, utes and 4WDs: bought new or second-hand, through a dealer or privately. See how our car loans work.
- Motorbikes: road, adventure and trail bikes that can be registered.
- Caravans, campers and motorhomes: a favourite for Big Lap adventures.
- Boats and jet skis: usually including the trailer and outboard.
- Term deposits: some lenders accept cash held in a term deposit.
Furniture, electronics, jewellery or a holiday usually can’t secure a loan. They’re hard to value, hard to trace or, in the case of a trip to Bali, impossible to repossess. That’s where unsecured personal loans step in.
What happens if I can’t repay a secured loan?
If you fall behind on a secured loan, the lender can eventually repossess the asset and sell it to recover what’s owed. If the sale doesn’t cover the balance and costs, you may still owe the difference.
It rarely jumps straight to that. Lenders generally contact you and send notices first, and you can ask about a hardship arrangement if your circumstances have changed.
With an unsecured loan there’s no asset to take, but missed repayments can still lead to fees, a default on your credit report and, eventually, legal action to recover the debt.
Can I get an unsecured loan with bad credit?
It’s possible, but harder. With no asset to fall back on, the lender leans entirely on your credit history and income, so past defaults or late payments carry more weight.
For many people with a bumpy history, a secured loan is the more realistic route, because the asset gives the lender comfort a patchy file can’t. Specialist lenders also look at the whole story: why it happened, how long ago and how stable things are now. There’s more on this in our bad credit loans overview.
Secured or unsecured: which should you choose?
Start with what the money is for, then work through these four questions. You’ll probably have your answer by the third.
- 1
Am I buying an asset?
Buying a car, van, boat or bike? A secured loan is usually the natural fit. Paying for an experience or a bill? Unsecured is your likely route.
- 2
Will the asset qualify?
Older vehicles or unusual items may fall outside lender limits. If so, an unsecured loan can still get you there.
- 3
How much flexibility do I need?
Planning to sell or upgrade before the loan ends? Ask how the lender handles that before you sign.
- 4
How strong is my credit file?
A patchy history often makes secured lending more realistic. A clean record gives you more choice either way.
Still torn? That’s our job. Share what you’re planning and our team will weigh up both structures across our panel of 60+ lenders and funders.
What you’ll need
- Your licence or passport
- Payslips or other proof of what you earn
- Your most recent bank statements
- Balances and repayments for any debts you already have
- For secured loans: VIN, rego and invoice or contract of sale
- Seller details if it’s a private sale
- Your realistic monthly living expenses
Who it usually suits
- Adults 18+, generally Australian citizens or permanent residents
- Reliable income with room in the budget for repayments
- A clear idea of what the loan will pay for
- For secured loans, an asset that meets lender age and condition rules
- Clean credit helps, though specialist lenders consider bumpier files
