Personal Loans: Secured vs Unsecured
ADS Team
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August 9, 2026
about 1 month ago
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In short: A secured personal loan is backed by an asset - usually a car - which lets the lender price it several percentage points below an unsecured loan. An unsecured loan has no collateral, settles faster, and costs more because the lender has nothing to recover beyond pursuing you personally.
Key takeaways
- Security typically saves 3-6 percentage points on the rate.
- Unsecured loans settle in days; secured loans need the asset verified.
- Defaulting on a secured loan means losing the asset.
- The comparison rate matters more on personal loans than on mortgages, because fees are proportionally larger.
The cost difference in dollars
On a $30,000 loan over 5 years:
| Type | Indicative rate | Monthly | Total interest |
|---|---|---|---|
| Secured (car) | 7.5% | $601 | $6,060 |
| Unsecured, strong credit | 11.0% | $652 | $9,120 |
| Unsecured, average credit | 15.0% | $714 | $12,840 |
The gap between secured and average unsecured is nearly $6,800 over the term.
What lenders assess
- Credit score - weighted far more heavily than on a mortgage, because there is often no security.
- Income stability and employment type.
- Existing commitments, including credit card limits and buy now pay later accounts.
- Purpose. Debt consolidation and vehicles price better than unspecified personal use.
When each is right
Secured when you are buying an asset the lender will take as security and you want the lowest rate. Unsecured when there is no asset, speed matters, or you are unwilling to risk losing something you already own.
One trap: consolidating unsecured debt into a loan secured against your car converts debt that could be negotiated into debt that can repossess the car. Cheaper is not automatically safer.
Frequently asked questions
Does a personal loan hurt my home loan application?
Yes. The repayment is counted as an ongoing commitment and reduces borrowing capacity - often by five to ten times the annual repayment in loan terms.
Can I pay a personal loan out early?
Usually, though fixed-rate personal loans may charge an early repayment fee. Variable-rate loans typically allow it freely.
Is the comparison rate important here?
More than on a mortgage. Establishment fees of $300-$600 on a $20,000 loan are proportionally large, so the comparison rate reveals cost the headline rate hides.
Related reading
- SMSF Loans: Limited Recourse Borrowing Explained
- Trade Finance for Australian Importers
- Invoice Finance and Debtor Finance: A Practical Guide
Sources
- Personal loans — ASIC Moneysmart
- Personal lending rates, statistical table F5 — Reserve Bank of Australia
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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