Secured vs unsecured loans: what's the difference?
A secured loan is backed by an asset, usually the car you're buying, that the lender can take and sell if you don't repay. An unsecured loan has no asset behind it. Because security lowers the lender's risk, secured loans usually have lower rates and higher limits; unsecured loans cost more but put none of your property directly on the line.
The RBA's figures show how much security matters: in July 2026, new personal fixed-term loans secured by residential property averaged 6.26%, against 9.40% for new personal fixed-term loans overall. This guide covers what can be used as security, what happens if you default, and how to choose.
By Better Rate Mate Editorial Team · Last reviewed
The difference at a glance
The trade-off is cost against risk to your assets:
| Secured loan | Unsecured loan | |
|---|---|---|
| Security | An asset: usually a car, sometimes a term deposit or property | None |
| Interest rate | Usually lower | Usually higher |
| Typical uses | Buying a car, motorbike, boat or caravan | Debt consolidation, renovations, travel, weddings, older cars |
| If you don't repay | The lender can repossess and sell the asset, and you owe any shortfall | The lender can take legal action to recover the debt |
| Extra conditions | The asset may need to meet age or value limits and be comprehensively insured | Fewer conditions on how you use the money |
| Registration | The lender records its security interest on the PPSR | Nothing registered against your property |
What can be used as security
For personal borrowing the security is usually the thing you're buying: a new or used car, motorbike, boat, caravan or trailer. Lenders set limits on the asset's age and value because it has to cover the loan if they sell it. Some lenders accept cash in a term deposit, and loans secured against residential property are priced lowest of all, but they put your home at risk.
While the loan is outstanding, the lender records its interest on the Personal Property Securities Register. That's how a buyer can tell a car still has finance on it, and why you'll need to pay the loan out, or get the lender's agreement, before you sell the asset.
Why secured loans cost less
If a secured borrower stops paying, the lender can recover much of its money by selling the asset, so it charges less for the risk. The RBA's averages show the gap is real: 6.26% on new personal fixed-term loans secured by residential property in July 2026, against 9.40% across all new personal fixed-term loans (most of which are secured by a vehicle or unsecured). On a $20,000 loan over 5 years, each percentage point is worth about $582 in interest.
What a lower rate is worth
Because the difference between a secured and an unsecured quote is a rate gap, it helps to know what each percentage point is worth. The table prices the same $20,000 loan over 5 years at rates either side of the RBA average. Hold your two quotes up against it, then add each loan's fees, because Moneysmart notes some lenders charge extra fees, such as valuation or legal fees, when a loan is secured.
| Interest rate | Monthly repayment | Total interest |
|---|---|---|
| 7.40% | $400 | $3,989 |
| 8.40% | $409 | $4,562 |
| 9.40% | $419 | $5,144 |
| 10.40% | $429 | $5,733 |
| 11.40% | $439 | $6,331 |
| 13.40% | $459 | $7,550 |
Selling, refinancing or paying out a secured loan
While a secured loan is running, the asset isn't entirely yours to deal with. If you want to sell the car, the buyer will expect the lender's interest to be cleared, so you'll usually ask the lender for a payout figure and settle the loan from the sale proceeds. If you refinance, the new lender pays out the old one and registers its own security. Either way, check the contract for an early repayment fee, which is more common on fixed-rate loans.
An unsecured loan is simpler here: you can sell whatever you bought with it and keep repaying as normal. That flexibility is part of what the higher rate pays for.
What happens if you can't repay
With a secured loan, the lender can repossess the asset and sell it to recover the debt. If the sale doesn't cover what you owe plus costs, you still owe the difference. Moneysmart also warns that if you have to sell the car to repay the loan, the price may not cover the debt.
With an unsecured loan, the lender can't take a particular asset, but it can take legal action, list a default on your credit report (it stays for five years) and pass the debt to collectors. Either way, the first step is the same: contact the lender's hardship team before you miss a payment, and call the National Debt Helpline on 1800 007 007 for free advice.
Which should you choose?
Match the loan to what you're buying and how much risk you can carry:
- Buying a newer car or other vehicle: a secured car loan is usually the cheaper option
- Buying an older car the lender won't take as security: an unsecured personal loan
- Renovation, medical or travel costs: an unsecured loan, unless you'd rather use home equity and accept the risk and longer term
- Consolidating debts: be wary of securing unsecured debts against your home or car; see debt consolidation
- Planning to sell the asset before the loan ends: check the payout process and any early repayment fee
Guarantors
A guarantor, usually a family member, agrees to repay the loan if you can't. Some lenders offer a lower rate or will only lend with one. Moneysmart warns that it puts the guarantor's own finances at risk, so both of you need to understand exactly what they're agreeing to before anyone signs.
What to watch for
- If a secured asset is sold for less than you owe, you still owe the shortfall.
- Secured car loans may require comprehensive insurance and set vehicle age limits.
- Never secure small or short-term debts against your home without advice.
- Check the PPSR before buying a used car, so you don't take on someone else's secured debt.
- Being a guarantor makes you liable for the whole debt if the borrower can't pay.
Common questions
Is a secured or unsecured loan better?
A secured loan is usually cheaper, and is the better choice when you're buying an asset the lender will accept as security. An unsecured loan costs more but doesn't put a specific asset at risk, and suits purposes like renovations or travel.
Is a car loan secured?
Most car loans are secured by the car being bought. If the car is too old for the lender's rules, you may only be offered an unsecured personal loan at a higher rate.
What happens to a secured car if I want to sell it?
The lender's interest is registered on the PPSR, so you need to pay out the loan, usually from the sale proceeds, before the buyer gets clear title. Ask the lender for a payout figure and whether an early repayment fee applies.
Can I get an unsecured loan without a guarantor?
Yes, most unsecured loans don't need a guarantor. Lenders may ask for one if your income, credit history or the loan amount doesn't meet their criteria on your own.
About rates on this page
We don't quote lenders' rates: they change often, depend on your credit history and we don't have a live feed. The averages here are the RBA's published figures for the month shown. Ask any lender for its interest rate, comparison rate and every fee in writing before you apply. This is general information, not financial advice.
