Secured vs Unsecured Loans: What’s the Difference and Which Is Right for You?
When you’re applying for a loan, one of the first things lenders consider is whether it’s secured or unsecured. The difference between the two can affect how much you can borrow, your interest rate, and even your approval chances.
In this guide, we’ll explain the difference between secured and unsecured loans, their pros and cons, and how to decide which type of finance best suits your needs.
What Is a Secured Loan?
A secured loan is a loan that’s backed by an asset — something valuable that acts as security (collateral) for the lender.
If you can’t make your repayments, the lender can legally take possession of that asset to recover their loss.
Common examples of secured loans:
- Car loans – the car itself is used as security
- Home loans (mortgages) – the property secures the loan
- Equipment finance – business assets, vehicles, or machinery can serve as collateral
Features of secured loans:
- Lower interest rates: Less risk for lenders, so rates are more competitive
- Higher approval chances: Especially if you have bad credit or limited financial history
- Larger loan amounts: Because there’s an asset to back the loan
- Ownership conditions: You often can’t sell the asset until the loan is paid off
In Australia, many car loans (including those offered through Zoom Car Loans) are secured, meaning the vehicle you purchase becomes the loan’s security until fully repaid.
What Is an Unsecured Loan?
An unsecured loan does not require any collateral. The lender relies entirely on your creditworthiness, income, and financial stability to approve the loan.
Because the lender has no asset to reclaim if you default, unsecured loans usually come with higher interest rates and stricter eligibility requirements.
Common examples of unsecured loans:
- Personal loans for holidays, medical expenses, or renovations
- Debt consolidation loans
- Some business or cash-flow loans
Features of unsecured loans:
- No collateral required: You keep full ownership of your assets
- Faster approval process: Less documentation needed
- Smaller loan amounts: Lenders limit exposure since there’s no security
- Higher interest rates: To offset the lender’s risk
Key Differences Between Secured and Unsecured Loans
| Feature | Secured Loan | Unsecured Loan |
|---|---|---|
| Collateral Required | Yes (e.g. car, property, equipment) | No |
| Interest Rate | Lower | Higher |
| Loan Amount | Higher limits | Typically smaller |
| Approval Chances | Easier, especially with bad credit | Harder if you have poor credit |
| Processing Time | Slightly longer due to asset checks | Usually faster |
| Risk to Borrower | Asset may be repossessed if you default | No asset risk, but higher rates |
| Common Uses | Car loans, mortgages, business equipment | Personal expenses, small business funding |
Advantages of Secured Loans
- Lower interest rates and fees
- Higher borrowing capacity
- Easier approval with bad credit
- Can help build credit if repaid on time
Advantages of Unsecured Loans
- No risk to personal or business assets
- Quicker access to funds
- Simpler application process
- Flexible use for personal or business needs
Which Type of Loan Should You Choose?
The best option depends on your financial situation, goals, and risk tolerance.
Choose a secured loan if:
- You’re buying a car, home, or business asset
- You want lower interest rates and larger loan amounts
- You’re comfortable offering collateral
- You have bad credit and need better approval odds
Choose an unsecured loan if:
- You don’t want to risk your assets
- You need funds quickly for a smaller amount
- You have strong credit and steady income
- You want flexibility in how you use the money
Example: Car Loan Scenario
Let’s say you want to buy a $25,000 car.
- With a secured car loan, the vehicle acts as collateral. You might get a 6.5% interest rate.
- With an unsecured personal loan, no asset is attached — but your rate could be closer to 12–15%.
Over a 5-year term, that difference in rates could save you thousands of dollars in interest.
How Zoom Car Loans Can Help
At Zoom Car Loans, we specialise in helping Australians find both secured and unsecured car finance that suits their situation — including applicants with bad credit, ABN holders, or low documentation.
Why choose Zoom Car Loans:
- Access to 30+ trusted lenders across Australia
- High approval rate (9 out of 10 qualified applicants)
- Low-doc and no-deposit options available
- Transparent, no-obligation advice
- 100% Australian-owned and accredited by FBAA and COSL
Whether you’re looking for a low-rate secured car loan or flexible unsecured finance, our brokers will guide you to the right solution.
Frequently Asked Questions (FAQs)
1. Is a secured loan always cheaper than an unsecured one?
Usually yes, because lenders take on less risk when an asset is used as security.
2. Can I get a secured loan with bad credit?
Yes. In fact, secured loans are often easier to get approved for if you have a poor credit score.
3. What happens if I default on a secured loan?
The lender may repossess the asset (like your car) to recover their funds.
4. Are unsecured loans harder to qualify for?
Yes. Without security, lenders rely on your income and credit score, so the criteria can be stricter.
5. Can I change from an unsecured to a secured loan later?
In some cases, yes — for example, when refinancing through a broker or if your circumstances improve.
The Bottom Line
The main difference between secured and unsecured loans comes down to risk and cost: secured loans are backed by collateral and usually cheaper, while unsecured loans offer flexibility but at higher rates.
If you’re unsure which option is right for you, Zoom Car Loans can help assess your financial situation and connect you with lenders who fit your needs.
Apply online today at Zoom Car Loans – Secured vs Unsecured Loans to get expert help finding the best loan for your goals.