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Secured vs unsecured personal loans: What’s the difference?
What is the difference between a secured and unsecured personal loan? And what factors should you consider if you are thinking about applying for one?
01 Aug 2025
What is the difference between a secured and unsecured personal loan? And what factors should you consider if you are thinking about applying for one?
KEY POINTS
- Secured personal loans use an asset as collateral, and tend to have lower interest rates than unsecured loans..
- Unsecured loans don’t require you to use an asset as security, and may offer more flexibility than some secured loans.
- Car loans are a type of secured personal loan where the vehicle you’re buying is usually used as security.
What is a secured personal loan?
A secured personal loan is a loan that uses something that you own, such as your car or house, as ‘security’ or ‘collateral’. If you aren’t able to repay a secured personal loan, the lender has the right to repossess and sell the security to help cover the value of the loan.
This added financial security for the lender means that interest rates for secured personal loans are generally lower than for unsecured loans. Lenders may also assess potential borrowers differently if they are applying for a secured loan.
Depending on the lender you choose and the size of the loan you’re applying for, some assets that could potentially be used for security include:
- A cash deposit: Similar to home loans, a personal loan can sometimes be secured by a sum of money paid as a deposit. Depending on the lender, you may also be able to secure your loan with a term deposit.
- Property: Equity in a property could be used to secure a personal loan. This may include residential, commercial or rural land, depending on your circumstances.
- Vehicles and equipment: A new or used car, a boat or motorbike, or farm machinery or equipment, could all potentially be used to secure a personal loan.
- High-value assets: Items worth a large amount of money, such as art or jewellery, may also be used as collateral for a loan in some cases.
What is an unsecured personal loan?
An unsecured personal loan does not require the borrower to put forward an asset or other form of security to protect the lender. If a borrower can’t repay an unsecured loan, they would not automatically lose a secured asset. Instead, the lender would likely take the borrower to court to recover the money.
Because the risk of the lender losing money is theoretically higher, lenders typically charge higher interest rates on unsecured personal loans. And when applying for an unsecured personal loan, the lender may look more closely at factors relating to the borrower’s finances, such as their income and credit score.
Secured vs unsecured loan interest rates and fees
The overall cost of a personal loan will depend on a range of factors, such as:
- the amount you borrow;
- the loan term (how long the loan lasts);
- the interest rate on the loan, and;
- any fees charged (including establishment and ongoing fees).
Whether the loan is secured or unsecured may influence some of these factors (for example, secured loans often have lower interest rates than similar unsecured loans), meaning it can also affect how expensive the loan is to the borrower in total.
For example, here are the average interest rates and fees for secured and unsecured personal loans on Canstar’s database at the time of writing, based on a loan amount of $20,000 over five years:
Personal loan average interest rates and fees – secured vs unsecured
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| Secured loan | Unsecured loan | |
|---|---|---|
| Loan amount |
$20,000 | $20,000 |
| Repayment term |
5 years | 5 years |
| Average interest rate |
9.57% | 11.72% |
| Monthly repayment |
$421 | $442 |
| Average application fee |
$218 | $218 |
| Total interest and fees paid |
$5461 | $6742 |
Source: www.canstar.com.au – 15/07/2025. Based on personal loans on Canstar’s
database available for a $20,000 loan amount and 5 year loan term. Where rate
range applies the mid rate is used. Other upfront and/or ongoing fees may apply.
Remember, while these calculations use the average interest rates for personal loans on Canstar’s database, the actual rate charged on a secured or unsecured personal loan can vary depending on several factors, including the borrower’s personal circumstances. For example, if you have a high credit score, you may be more likely to secure a personal loan with a lower rate of interest. You can compare personal loan interest rates and fees with Canstar.
What are secured car loans?
Many lenders provide car loans specifically for customers who are purchasing a vehicle. These are typically structured as secured personal loans, using the value of the vehicle being purchased as security. Lenders sometimes place limits on the minimum value and the age of the vehicle used as security, and the interest rate charged may depend on whether the vehicle is new or used.
For example, at the time of writing, the average interest rate for a new car loan across the Canstar database is 8.47%, compared to 9.10% for a used car loan. This is based on secured car loans available for a loan amount of $25,000 and a term of five years. The lender may also specify how the car loan amount can be used – for example, the use of car loan funds may be limited to purchasing a vehicle intended for personal use.
Again, the figures above are averages and the interest rate you end up getting will depend on your own circumstances and the lender you choose. It could be worth comparing your options to find a product that suits your needs.
Cover image source: Doucefleur/istockphoto.com
This article was reviewed by our Content Editor Alasdair Duncan before it was updated, as part of our fact-checking process.
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