Secured vs Unsecured Personal Loans
The difference between secured and unsecured personal loans in Australia, what each costs, what you can use them for, and how lenders assess you.
The short answer
A secured personal loan is backed by an asset, usually a car, that the lender can take if the loan is not repaid. An unsecured personal loan has no asset behind it. Because the lender takes less risk, secured loans usually have lower rates and can allow larger amounts.
An unsecured loan is simpler, and suits purposes where there is no asset to offer as security, such as a holiday, medical costs or consolidating debts.
How the cost compares
As an illustration, a $10,000 loan over 3 years with no fees:
- At 11% p.a. (a typical secured rate): about $327 a month, about $1,786 in interest.
- At 16% p.a. (a typical unsecured rate): about $352 a month, about $2,657 in interest.
These are examples only. Your rate depends on your credit history, income and the lender. Compare loans on their comparison rate and the total amount you will repay.
What personal loans are used for
- Buying a car, motorbike, caravan or boat. A secured loan over the vehicle is usually the cheaper choice, and our guide to how car finance works covers it.
- Consolidating credit cards and other debts into one repayment.
- Home improvements, medical or dental costs, weddings or travel.
If you are consolidating debts, check that the new loan's total cost is lower than what you are paying now, and close the old accounts so the debt does not build up again.
How lenders assess you
For any personal-use loan, the lender must make reasonable inquiries about your situation and verify it before lending. Expect to provide:
- Proof of income, usually two recent payslips, or tax returns if you are self-employed.
- Bank statements, often for the last 90 days, which lenders use to check your spending and other repayments.
- Details of your other debts and living expenses.
- ID, such as a driver licence.
The lender also checks your credit report. A low score does not rule you out, but it affects your rate and which lenders will consider you.
Fixed or variable, and early repayment
Most personal loans have a fixed rate, so your repayment stays the same for the whole term. Some lenders charge a fee if you repay a fixed-rate loan early, while others do not. Variable-rate loans can move with interest rates, but usually let you make extra repayments without penalty.
If you think you might pay the loan off early, check the early payout terms before you sign.
Comparing personal loans with Flash Funding
Our comparison tool shows indicative personal loan options from lenders on our panel, with interest rates, comparison rates and repayments. Comparing involves no credit check.
If you own a registered vehicle, some lenders on our panel offer a secured personal loan against it, which can mean a lower rate. Read more about personal loans.
Frequently asked questions
Is a secured personal loan cheaper?
Usually. Because the loan is backed by an asset such as a car, lenders generally offer lower rates and larger amounts than for unsecured loans.
What can I use as security for a personal loan?
Most lenders accept a registered vehicle, such as a car, motorbike or caravan, that is in your name and within their age and value limits.
How much can I borrow with a personal loan?
It depends on the lender, your income, your expenses and your credit history. Unsecured limits are usually lower than secured limits.
Will checking personal loan options affect my credit score?
Comparing options on our website involves no credit check. A formal application to a lender is recorded on your credit file.
Sources
This guide is general information only. It does not take into account your objectives, financial situation or needs, and it is not credit, tax or legal advice. Tax and GST outcomes depend on your circumstances, so confirm them with your accountant. All finance is subject to lender approval, terms and conditions, and fees and charges apply.
Related reading
Related service: Personal loans
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