What Is a Secured Car Loan?
A secured car loan uses the vehicle you are purchasing as collateral for the loan. This means the lender registers their interest in the vehicle on the Personal Property Securities Register (PPSR), giving them a legal claim to the asset until you pay off the loan in full.
From the lender's perspective, secured loans carry less risk because they have recourse if you default on your repayments. If you fail to meet your payment obligations, the lender has the legal right to repossess the vehicle and sell it to recover their funds. This security arrangement typically allows lenders to offer more competitive interest rates compared to unsecured alternatives.
Most dedicated car finance products in Australia, including those offered by banks, credit unions, and specialist car finance companies, are secured loans. They represent the most common way Australians finance vehicle purchases, particularly for newer cars with higher values.
What Is an Unsecured Car Loan?
An unsecured car loan, typically structured as a personal loan, does not use the vehicle as collateral. Instead, the loan is approved based on your creditworthiness, income, and ability to repay. The lender has no registered claim over your vehicle or any other specific asset.
Because unsecured loans present greater risk to lenders, they generally come with higher interest rates. If you default on an unsecured loan, the lender cannot automatically repossess your car. However, they can pursue other legal remedies, including court action and debt collection, which can still result in significant financial consequences.
Unsecured personal loans offer flexibility in how you use the funds. While you might use the money to purchase a car, you could also use it for other purposes, and there are typically no restrictions on the age or type of vehicle you can buy.
Interest Rates: The Cost Difference Explained
The interest rate difference between secured and unsecured car loans can be substantial. As of early 2026, secured car loan rates from major Australian lenders typically range from 5.5 to 9 percent per annum for borrowers with good credit. Unsecured personal loan rates for the same borrowers often range from 8 to 15 percent or higher.
To understand the real-world impact of this difference, consider a $30,000 loan over five years. At 7 percent interest with a secured loan, you would pay approximately $5,700 in total interest. At 12 percent with an unsecured loan, total interest climbs to around $10,200. That is a difference of $4,500 over the life of the loan. Use our car finance calculator to compare different interest rate scenarios and see how they affect your total costs.
However, advertised rates do not tell the whole story. Always compare the comparison rate, which includes fees and charges, to get a true picture of the loan's cost. Some unsecured loans have lower fees that partially offset their higher interest rates.
Flexibility and Restrictions: What You Can Buy
Secured car loans often come with restrictions on the vehicles you can finance. Lenders want to ensure the asset securing the loan holds sufficient value, so they typically impose limits on vehicle age and condition.
Common restrictions on secured loans include maximum vehicle age at the end of the loan term, often 10 to 12 years. Some lenders will not finance vehicles older than seven years at purchase or those with odometer readings above 150,000 kilometres. Private sales may require additional documentation or not be permitted at all.
Unsecured personal loans offer more flexibility. Because the loan is not tied to a specific asset, you can purchase any vehicle regardless of its age, condition, or seller. This makes unsecured finance attractive for buying older vehicles, classic cars, or purchasing from private sellers without the complications of lender restrictions.
Ownership and Sale Considerations
With a secured loan, while you possess and use the vehicle, the lender maintains a financial interest until the loan is fully repaid. This has practical implications if you want to sell the car before the loan term ends.
To sell a vehicle with a secured loan, you must arrange to pay out the loan from the sale proceeds. The lender will remove their PPSR registration only after receiving full payment. This can complicate private sales and may affect your negotiating position with dealers on trade-ins.
With an unsecured loan, you own the vehicle outright from day one. You can sell it at any time without needing to involve the lender, though you remain responsible for continuing your loan repayments regardless of whether you still own the car. This flexibility can be valuable if your circumstances change or you decide to upgrade your vehicle.
Risk Assessment: What Happens If Things Go Wrong
Understanding the risks associated with each loan type helps you make a decision aligned with your risk tolerance and financial stability.
Secured Loan Risks: The primary risk is repossession. If you cannot make your repayments, the lender can seize your vehicle, often with limited notice. The car will be sold, and if the sale price does not cover your outstanding debt, you may still owe the difference. This shortfall becomes an unsecured debt that the lender can pursue through other means.
Unsecured Loan Risks: While you cannot lose your car to repossession for an unsecured loan default, the consequences are still serious. Missed payments damage your credit score significantly. The lender can pursue court judgments, potentially leading to wage garnishment or other enforcement actions. The debt can also be sold to collection agencies, resulting in persistent contact and potential legal action.
Neither option is without risk, and the best choice depends on your individual circumstances, including job security, emergency savings, and overall financial stability.
Which Option Suits Different Situations?
Secured loans are often better when: You are buying a newer vehicle that meets lender criteria. You have good credit and qualify for competitive secured rates. Minimising total interest paid is a priority. You plan to keep the vehicle for the full loan term or longer.
Unsecured loans may be preferable when: You are buying an older vehicle that does not qualify for secured finance. You want flexibility to sell the vehicle at any time without complications. You are buying from a private seller. You prefer not having the vehicle at risk of repossession. You want a simpler loan structure without PPSR registrations.
Some buyers choose unsecured loans despite higher rates simply for the ownership clarity and flexibility they provide. Others happily accept secured loan restrictions in exchange for substantially lower interest costs.
Making Your Decision: Key Questions to Ask
Before deciding between secured and unsecured finance, consider several key questions. What type and age of vehicle are you purchasing? Does it meet secured loan requirements? How important is total interest cost compared to flexibility? How stable is your income and employment situation? Do you anticipate needing to sell the vehicle before the loan ends?
Calculate the actual dollar difference between your secured and unsecured options using our car finance calculator. Sometimes the interest rate difference translates to a relatively small dollar amount that may be worth paying for unsecured flexibility. In other cases, the secured loan savings are too significant to ignore.
Whatever you choose, ensure you borrow only what you can comfortably repay and understand the full terms and conditions of your loan before signing.
Compare Your Loan Options
Calculate repayments at different interest rates to see how secured versus unsecured options compare.
Car Finance Calculator Team
Our team of finance experts is dedicated to helping Australians make informed decisions about car loans. We provide accurate, up-to-date information to guide you through your vehicle financing journey.