Secured vs. unsecured personal loans: how to choose what's best for you
If you’re thinking about getting a personal loan, chances are that you’ve come across “secured” and “unsecured” loans, but maybe you weren’t exactly sure what the difference between the two loan types is.
Both have their advantages and disadvantages, so it’s good to keep in mind what you’re intending to use your loan on. Afterall, both personal loan types are better suited for different situations.
What are Secured Loans?
Choosing a secured loan means putting something of value on the line—this is known as collatoral. Assets that you can put up for security might be a car, a home if you own a property. Just keep in mind that, if you default on the loan, the lender can seize the asset used as collateral.
Since lenders consider secured loans less risky than unsecured loans, due to valuable assests they often offer lower interest rates, larger loan amounts, and longer repayments terms, making them an appealing choice for larger investments like home renovations or a new car.
Secured Loan Advantages
Borrowers may find that secured loans have some advantages that may be worth considering.
- As mentioned before, secured loans will generally have a lower interest rate
- As your loan is secured against an asset, lenders usually don’t need as high a credit score as unsecured loans.
- Secured loans can also have longer terms, making regular repayments more manageable.
- They generally allow for larger amounts to be borrowed.
Secured Loan Disadvantages
While secured loans offer some advantages, there are some downsides that borrowers may want to consider when looking to take out a secured personal loan.
- Larger loans could lead to overborrowing
- If you fail to make repayments, you may find your asset repossessed.
- Longer terms could mean more interest paid overall than if the loan term were shorter.
What are Unsecured Loans?
Unsecured loans are loans that don’t need an asset put up as collatoral, meaning you don’t need to own a home or vehicle in order to get a loan.
Unsecured loans are usually better for smaller, short-term expenses, like covering a vacation, consolidating high-interest credit card debt, or even for buying a second hand car. Just keep in mind that there interest rates, on average, will tend to be a bit higher than personal loans.
As you’re not securing any assets to the loan, you won't lose your house or car if you can't make the repayments, but there are still consequences. These can include damaged credit scores, increased interest rates, and legal action.
Unsecured Loan Advantages
While unsecured loans may not have the same advantages as secured loans on a long term basis, there are still some advantages worth considering.
- Can be a quicker application process
- Personal assets like property or a car may not be at risk of collateral.
- Lower interest rate than credit cards
Unsecured Loan Disadvantages
Unsecured loans can There are also some downsides to unsecured loans that you may want to consider such as:
- Higher average interest rates than secured loans
- Generally require a higher credit score
- May need a minimum income
Personal loan considerations
As mentioned before, secured loans usually have lower interest rates because of the reduced risk for lenders. However, how big is the difference between the two personal loan types?
Loan Type | Average Interest Rate* |
Unsecured Personal Loan | 10.08% |
Secured Personal Loan | 8.84% |
*Average interest rates calculated on the Mozo database considering both variable and fixed interest loans of $10,000. Correct as of 7 July 2023.
While the average rates point towards secured loans, it’s good to keep in mind that there are a good number of unsecured loans that currently sit below average of secured loans. Therefore, aside from interest rates, it’s important to consider other factors that could be helpful such as:
- Your ability to repay
- How much you’re borrowing
- Your credit score
- Income and income reliability
- How much you have in savings
Secured vs. Unsecured Loans: Which one?
Personal Loan FAQ
What is the difference between fixed and variable rate personal loans?
A fixed rate loan will have its interest rate set at a specific rate for a set period of time. Alternatively, a variable rate loan will change whenever rates rise or are cut. Variable rate loans can also be payed off with early repayments—however, on the other hand, not all fixed rate loans have an early repayment feature and tend to have a fee associated with it. Therefore, it might be helpful to think about variable rate loans as flexible while fixed rate loans are more for borrowers who need the certainty of a fixed payment schedule.
What is a credit score?
A credit score is a way of identifying someone's creditworthiness, usually quantified as a number between zero and 1,000. Generally, it is calculated by looking at factors such as your payment history, debt, income, and recent applications for new credit. Keep in mind that banks and lenders will use a credit score to not only assess your suitability as a borrower but to also determine the interest rate you’ll be offered.
Whether a secured or unsecured loan is best for you will depend on what you are planning on using the personal loan for and your financial situation. Before you choose the loan type you should crunch some numbers and find out where you’re at in your financial situation such as your credit score, ability to make repayments, how much disposable income you have, and your savings.
Not sure which loan provider is right for you? At Mozo, our database of personal loans can be a great way to compare lenders so that you know you’re getting the loan that works best for you.
Compare personal loans - last updated 22 May 2024
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Mozo experts choice awards won:
- Excellent Credit Unsecured Personal Loan - 2024
Unsecured Personal Loan
Fixed
interest rate
comparison rate
Monthly repayment6.75% p.a.to 26.95% p.a.6.75% p.a.to 26.95% p.a.based on $30,000
over 5 yearsBorrow up to $50,000 unsecured. Perfect if you earn more than $22,100 p.a. and have good to excellent credit. Multi-year winner of Mozo’s Experts Choice Unsecured Personal Loan Award, 2021, 2022, 2023 & 2024^'
Repayment terms from 2 years to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,430.23 including fees.
CompareCompare- interest rate
- 6.75% p.a.to 26.95% p.a.
- comparison rate
- 6.75% p.a.to 26.95% p.a.based on $30,000
over 5 years
- interest rate
- 6.75% p.a.to 26.95% p.a.
- comparison rate
- 6.75% p.a.to 26.95% p.a.based on $30,000
over 5 years
- Upfront fee
- $0.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $0.00
- Repayment options
- Weekly, Fortnightly
- Early repayment penalty
- 0
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 2 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rates based on borrower with excellent credit score. Maximum 3 year term for loan amounts $8,000 or less.
Read our Mozo Review to learn more about the NOW Finance Unsecured Personal Loan
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Unsecured Personal Loan
Fixed
interest rate
comparison rate
Monthly repayment5.76% p.a.to 24.03% p.a.6.55% p.a.to 24.98% p.a.based on $30,000
over 5 yearsFast, easy and 100% online, this is a low cost loan with no ongoing fees or extra repayment penalties. It's perfect for savvy borrowers with great credit. If you’re over 18 and earn above $30,000, you could qualify (other eligibility criteria may apply).
Repayment terms from 3 years to 7 years. Representative example: a 5 year $30,000 loan at 5.76% would cost $35,173.52 including fees.
CompareCompare- interest rate
- 5.76% p.a.to 24.03% p.a.
- comparison rate
- 6.55% p.a.to 24.98% p.a.based on $30,000
over 5 years
- interest rate
- 5.76% p.a.to 24.03% p.a.
- comparison rate
- 6.55% p.a.to 24.98% p.a.based on $30,000
over 5 years
- Upfront fee
- $575.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $15.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,000.00
- Maximum loan amount
- $70,000.00
- Minimum loan term
- 3 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- Establishment fee is $275 for loans under $5,000.
- Other restrictions
- Establishment fee is added to the loan amount and interest is charged on the total amount.
Read our Mozo Review to learn more about the Harmoney Unsecured Personal Loan
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Featured Product
Mozo experts choice awards won:
- Excellent Credit Unsecured Personal Loan - 2024
Low Rate Personal Loan
Excellent Credit
interest rate
comparison rate
Monthly repayment6.57% p.a.to 8.48% p.a.7.19% p.a.to 8.84% p.a.based on $30,000
over 5 yearsCompetitive low rates for borrowers with excellent credit on 1-7 year loans from $2,001 up to $75,000, plus free extra repayments. Winner of Mozo's Experts Choice Excellent Credit Unsecured Personal Loan 2024 and Excellent Credit Secured Personal Loan 2024 awards ^. Min. income of 25k after tax, to apply.
Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.
CompareCompare- interest rate
- 6.57% p.a.to 8.48% p.a.
- comparison rate
- 7.19% p.a.to 8.84% p.a.based on $30,000
over 5 years
- interest rate
- 6.57% p.a.to 8.48% p.a.
- comparison rate
- 7.19% p.a.to 8.84% p.a.based on $30,000
over 5 years
- Upfront fee
- $250.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $75,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rate for Excellent Credit. Establishment fee varies from $250 and is based on your OurMoneyMarket loan grade and total loan amount. The fee is added to the principal amount and paid over the loan term.
Read our Mozo Review to learn more about the OurMoneyMarket Low Rate Personal Loan
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Express Personal Loan
Secured
interest rate
comparison rate
Monthly repayment14.95% p.a.to 27.95% p.a.29.30% p.a.to 42.8% p.a.based on $10,000
over 3 yearsAccess fast finance on loans from $3,000 to $25,000 with a Jacaranda Finance Personal Loan. Terms from 25-48 months. Check if you qualify with no impact on your credit score. Enjoy a speedy, online approval.
Repayment terms from 2 years to 4 years. Representative example: a 3 year $10,000 loan at 14.95% would cost $14,324.71 including fees.
CompareCompare- interest rate
- 14.95% p.a.to 27.95% p.a.
- comparison rate
- 29.30% p.a.to 42.8% p.a.based on $10,000
over 3 years
- interest rate
- 14.95% p.a.to 27.95% p.a.
- comparison rate
- 29.30% p.a.to 42.8% p.a.based on $10,000
over 3 years
- Upfront fee
- $990.00
- Monthly fee
- $24.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- 0
- Minimum loan amount
- $3,000.00
- Maximum loan amount
- $25,000.00
- Minimum loan term
- 2 Years
- Maximum loan term
- 4 Years
- Security required
- Various, Vehicle
- Other benefits
- -
- Other restrictions
- Application fee from $475 to $990. Additional Risk Fee of $0 to $995 applies. Minimum loan term is 25 months.
Read our Mozo Review to learn more about the Jacaranda Finance Express Personal Loan
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Debt Consolidation Loan
interest rate
comparison rate
Monthly repayment6.57% p.a.to 18.99% p.a.7.19% p.a.to 19.39% p.a.based on $30,000
over 5 yearsCompetitive fixed rates on loans up to $75,000 depending on your credit score. Zero monthly account keeping fees, no exit fees and no early repayment fees. Make weekly, fortnightly or monthly repayments, over 1 to 7 years managed entirely online, at any time. Fast and easy, 100% online application.
Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.
CompareCompare- interest rate
- 6.57% p.a.to 18.99% p.a.
- comparison rate
- 7.19% p.a.to 19.39% p.a.based on $30,000
over 5 years
- interest rate
- 6.57% p.a.to 18.99% p.a.
- comparison rate
- 7.19% p.a.to 19.39% p.a.based on $30,000
over 5 years
- Upfront fee
- $250.00
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- -
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $75,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Upfront fees from $250.
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