Guide
Secured vs unsecured loans
One is cheaper. One is safer. The right answer depends on what you own and what you can afford to lose.
- Written by our credit team
- Updated August 2026
- General information — not personal advice
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The difference in one line
A secured loan gives the lender a legal claim over an asset. An unsecured loan does not.
What that means in practice
Secured
Lower rate, often by several percentage points. Higher borrowing limits. More flexible policy if your credit is imperfect. Slower to settle, because the asset must be verified and an interest registered.
The risk: default far enough and the lender can repossess and sell the asset.
Unsecured
No asset at risk. Faster approval and settlement. Simpler paperwork.
The cost: a higher rate, generally lower limits, and tighter credit policy.
The arithmetic
On $30,000 over five years, the gap between 9.00% and 13.00% is roughly $3,400 in total interest. That is a meaningful saving. It is also the price of putting your vehicle at risk for five years.
Whether that trade is worth taking depends on how stable your income is. If your work is secure and the repayment sits comfortably within your budget, secured lending is usually the rational choice. If your income is variable or the repayment is tight, the cheaper loan may be the more expensive decision.
What can be used as security
- Motor vehicles — most common. Age limits apply, usually based on the vehicle's age at the end of the term.
- Real property — the lowest rates available, but the consequences of default are the most serious.
- Boats, caravans, motorbikes — accepted by a narrower lender panel, with tighter conditions.
- Business equipment — for commercial lending, secured against the asset financed.
Things people do not expect
Comprehensive insurance is mandatory
Secured vehicle lenders require comprehensive cover for the life of the loan, with the lender noted as an interested party. That is a real ongoing cost to budget for alongside the repayment.
The asset is registered on the PPSR
The lender's interest is recorded on the Personal Property Securities Register. You cannot sell the asset with clear title until the loan is paid out. Anyone buying it can see the encumbrance — which is exactly why you should run a PPSR check before buying a car privately.
Negative equity is common early on
Vehicles depreciate faster than loans amortise, particularly in the first two years. If you need to sell early, you may owe more than the car is worth. A larger deposit or a shorter term reduces this.
Deciding
Ask three questions. Can I comfortably afford the repayment if my income dropped for three months? Do I own a suitable asset I can afford to have at risk? Is the rate difference large enough to matter on my loan size?
If the answer to any of them is no, unsecured is probably the better fit despite costing more.
Quick answers
Can I switch from unsecured to secured later?
Effectively yes, by refinancing into a secured loan. Whether it is worthwhile depends on the rate difference against any exit costs.
What happens if I default on a secured loan?
The lender must follow a legally prescribed process including notice periods before repossession. Contact them early — hardship arrangements are a legal right and far better than repossession for everyone.
Is a secured loan easier to get approved?
Generally yes. The security reduces the lender's risk, so credit policy is often more flexible.
Can I use someone else's car as security?
Almost never. Lenders require the borrower to own the asset. A guarantor arrangement is a different structure with serious consequences for the guarantor.
This article does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you and seek independent advice where necessary. Free guidance is available at moneysmart.gov.au.
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