Costs, Comparison Rates and 2026 Rules
Secured vs unsecured personal loans: rates, car security and what happens if you default
Why secured personal and car loans usually cost less than unsecured loans in Australia, what the lender can do with the security, PPSR registration and how to choose.
A secured personal loan is backed by an asset, most often the car you are buying, which the lender can repossess and sell if you default; because the lender's risk is lower, the interest rate is usually lower too. An unsecured personal loan has no asset behind it, so it is typically priced higher and approval rests more heavily on your income and credit history, but you do not put a specific asset at risk. If you are buying an eligible vehicle and can comfortably afford the repayments, a secured loan is usually cheaper; if the purchase is not something a lender will accept as security, or you do not want to pledge it, an unsecured loan is the alternative.
This guide is part of the personal loan requirements and comparison rates overview. Figures are illustrative, not lender quotes.
The difference at a glance
| Secured personal loan | Unsecured personal loan | |
|---|---|---|
| Security | Usually a car, motorbike, caravan or boat; sometimes a term deposit | None |
| Typical uses | Buying a vehicle | Renovations, travel, medical costs, debt consolidation, mixed purposes |
| Pricing | Generally lower rate | Generally higher rate |
| Approval | Income, credit history and the asset's age and value | Income and credit history carry more weight |
| Registration | Lender registers its interest on the Personal Property Securities Register (PPSR) | No PPSR registration for the loan |
| Selling the asset | Loan must be paid out or the lender must consent | No restriction from the loan |
| If you default | Lender can repossess and sell the security, after following the Code's notice rules | Lender can pursue the debt, list a default and go to court |
Why secured loans are cheaper — illustrative example
Borrow $25,000 over five years:
| Option | Rate (illustrative) | Monthly repayment | Total repaid |
|---|---|---|---|
| Secured car loan | 8.5% | about $512.91 | about $30,775 |
| Unsecured personal loan | 12.5% | about $562.45 | about $33,747 |
The difference is roughly $50 a month and almost $3,000 over the term, before fees. Check fees too: some secured loans add a PPSR or security fee, and a lower rate with higher fees can narrow the gap. Use the repayment calculator for your own figures.
What lenders accept as security
Lenders set their own rules, but common conditions include:
- Vehicle age: many lenders only accept cars below a certain age at the start or end of the loan. Older cars often push you into an unsecured loan.
- Value: the asset's value should cover the loan; some lenders use an independent valuation guide.
- Insurance: you will usually need comprehensive insurance for the term, with the lender noted as an interested party.
- Purchase type: dealer or private sale; private sales may need extra checks such as a PPSR search to confirm there is no existing finance on the car.
What happens if you fall behind
The National Credit Code sets out steps a lender must follow before enforcing a regulated credit contract or mortgage.
- Default notice. Before it can begin enforcement, the lender generally must give you a default notice that allows at least 30 days to fix the default.
- Hardship request. You can give a hardship notice under section 72 at any time you cannot meet your obligations; see the hardship notice guide.
- Repossession of goods. If the default is not remedied, a lender may repossess the secured goods. The Code places limits on this: for example, the lender needs the court's consent to repossess mortgaged goods if the amount still owing is less than 25% of the amount of credit provided or $10,000, whichever is less (section 91). This does not apply to continuing credit, or where the lender reasonably believes the goods have been or will be removed or disposed of, or urgent action is needed to protect them.
- Sale and shortfall. After repossession the lender must give notices and sell the goods for the best price reasonably obtainable. If the sale does not cover what you owe plus enforcement costs, you can still owe the shortfall.
For unsecured loans there is no asset to repossess, but the lender can refer the debt to a collector, list a default on your credit report if the conditions in the Privacy Act's credit reporting rules are met, and seek a court judgment.
Choosing between them
Ask yourself:
- Is the purchase an eligible asset? If not, unsecured is the only route.
- How long will the asset last? Borrowing over seven years for a car you will sell in four leaves you owing money on something you no longer have.
- What is the rate gap after fees? Compare comparison rates and total repayable, not just interest rates.
- How would you cope if you lost income? With a secured loan, losing the car may also affect your ability to get to work.
- Do you want to sell the asset before the loan ends? You will need to pay out the loan first.
Other kinds of security
- Guarantors: a family member guarantees the loan. This is a serious commitment for the guarantor; the lender can pursue them if you do not pay. They should get independent legal advice.
- Term deposit security: some lenders accept cash on deposit as security; the deposit is locked until the loan is repaid.
- Home equity: borrowing against your home for personal spending turns short-term debt into long-term debt secured on your house. See debt consolidation loan risks.
For fixed and variable options, see fixed vs variable personal loans; for fees, see the fees guide.
Frequently asked questions
Can I use an old car as security?
Possibly, but many lenders have age limits for vehicle security. If your car falls outside them, the lender may offer an unsecured loan at a higher rate instead.
Will a secured loan show on my credit report?
Yes, as a consumer credit account like any other loan. The security interest itself is registered on the PPSR, which is a separate public register.
Can the lender take the car without warning?
Generally no. The National Credit Code requires a default notice with time to remedy before enforcement, with limited exceptions such as where the lender reasonably believes the goods will be removed or disposed of. Get advice immediately if you receive a default notice.
Is a dealer finance offer a secured loan?
Usually yes. Dealer-arranged car finance is commonly secured over the car. Compare it with other offers using the comparison rate and total amount repayable, and check any balloon payment.
Sources and where to check
- Personal Property Securities Register — search a vehicle before buying
- ASIC Moneysmart — car loans and personal loans
- Federal Register of Legislation — National Credit Code enforcement provisions
- National Debt Helpline — free help if you are facing repossession, 1800 007 007
