What’s a secured vs unsecured personal loan?

More Australians are turning to personal loans to fund a renovation, consolidate debt or cover an unexpected cost. Data released from the Australian Bureau of Statistics showed new personal loan commitments were valued at $9.3 billion in September 2025, while demand for unsecured personal loans grew by 11.6% over the same period. 

One of the first things you'll come across when researching personal loans is the distinction between secured and unsecured loans. Understanding the difference can help you make a more informed decision about the right type of personal loan for your situation.

The type of loan you choose, whether that’s secured or unsecured, can affect everything from your interest rate to what's at risk if your circumstances happen to change.

Here's a clear breakdown of the different types of personal loans, what’s involved, how they compare, and what to consider when choosing between them.

What’s a secured loan?

A secured personal loan is tied to an asset, also called collateral. The asset acts as security against the loan for the lender. If you’re unable to meet your repayments, the lender has the right to take possession of the asset to recover the outstanding debt.

Some common examples of secured loans are:

Home loans: the property itself is the security

Car loans: the vehicle is used as collateral

Some business loans: equipment or property may be given as collateral

Secured personal loans are generally considered to be lower risk from the lender’s perspective because there’s an asset acting as security. Attaching collateral to the loan may also mean access to lower interest rates and higher borrowing limits.

What’s an unsecured loan?

An unsecured personal loan doesn’t require collateral. Instead, the lender assesses the applicant’s credit score, income and financial history to approve the loan application and set the rate.

Some types of unsecured loans include:

Personal loans: used for home renovations or debt consolidation

Credit cards for unsecured borrowing

Buy Now, Pay Later: short-term unsecured credit for purchases

Unsecured personal loans are riskier for lenders because there’s no collateral to sell if the debt goes unpaid. For the borrower, this can mean slightly higher interest rates, though the actual rate will depend on your individual credit profile. However, if you have a strong credit history, you may still be able to get competitive rates.

The biggest advantage for borrowers is that their assets aren’t secured against the loan. If your financial situation changes, you won’t lose your home or car as a direct result of the loan.

Comparing secured vs unsecured loans

The table below shows the key differences between unsecured and secured loans to help you decide which one suits you best.

Which type of personal loan is right for you?

Choosing between a secured vs an unsecured loan depends on your circumstances, the purpose of the loan and how much risk you’re willing to take on.

A secured personal loan may suit if you:

are borrowing a large amount to buy a home or a car

want to access the lowest possible interest rate and have an asset to offer as security

are comfortable with the arrangement that your asset is at risk if repayments are missed

 An unsecured personal loan may suit if you:

don’t want to put up an asset as collateral

need flexibility, as unsecured personal loans can typically be used for almost any purpose

have a good credit history and want a straightforward application process

want to borrow a manageable amount without the complexity of secured lending

Do unsecured loans have higher interest rates?

Unsecured personal loan rates can be slightly higher than secured loans in some cases because there’s no collateral to reduce the lender’s risk. However, your actual interest rate will depend on your individual credit profile. 

The best approach is to compare personalised rates rather than advertised rates. Many lenders allow you to check your rate before you apply without any impact on your credit score, so you know exactly where you stand before committing.

What to look for in unsecured personal loans

Key features to look for in an unsecured personal loan:

Personalised interest rates: your rate should reflect your credit profile, not just a one-size-fits-all rate

Transparent fees: look for a lender that’s clear about establishment fees, ongoing fees, and any other costs upfront

No early repayment fees: the flexibility to pay off your loan sooner without penalty

Fast approvals: a fully online process with same-day outcomes where possible

Taking the time to compare lenders across these particular features can make a significant difference to the total cost of your loan and your overall experience as a borrower.

How does a credit score affect loan options?

Your credit score is an important factor when applying for an unsecured or secured personal loan. For unsecured personal loans, lenders use credit scores to assess your application and determine your interest rate. 

A strong credit score means:

A higher chance of being approved for a loan

Access to lower interest rates, which means less interest paid overall

More flexibility in loan repayment terms

Know your credit score and where you stand before applying for loans.

Paying your bills on time, reducing existing debt, and avoiding multiple credit applications in a short period can help improve your credit score over time.

Common misconceptions about secured and unsecured loans

Here are some common misconceptions about secured and unsecured loans that are worth clearing up:

MYTH 1: Unsecured personal loans are for people who don’t own assets

Many people who own property or a vehicle still choose unsecured personal loans because they don’t want to put those assets at risk, or they simply need a faster, simpler borrowing process.

MYTH 2: You need to own a home to get a secured personal loan

Secured personal loans use various types of assets as collateral, not only property. Depending on the lender, you can also put up vehicles, term deposits, and other assets as collateral.

MYTH 3: Secured personal loans are always better value

A lower rate doesn’t automatically make a loan better value. The true cost of borrowing also includes fees, loan terms, flexibility, and the risk of using an asset as security against the loan. You need to compare each of these criteria for both loan types.

MYTH 4: Unsecured personal loans are harder to get approved for

The criteria for unsecured personal loans vary between lenders. A streamlined digital lender like MONEYME uses smart technology to assess loan applications quickly and efficiently, with none of the paperwork or delays of a traditional application.

Apply for MONEYME’s unsecured personal loan

If an unsecured personal loan sounds like the right fit, MONEYME makes it simple to find out where you stand, with no paperwork required.

Here's what's included:

Borrow from $5,000 to $70,000

Variable rates from 6.24% p.a. (comparison rate from 6.95% to 27.24% p.a.)

Loan terms between three and seven years

$0 early repayment fees

$10 monthly fee, so no hidden extras

Establishment fee of $0 for excellent credit history; otherwise, $395 for loans up to $15,000 or $495 for loans above that amount

Funding in as little as 60 minutes once approved

Start with an obligation-free quote today. Check your personalised rate, borrowing power, and eligibility in 90 seconds, with no impact on your credit score. 

This article is for general informational purposes only and does not constitute financial advice. Please consider your personal circumstances and seek independent advice if needed.