- Secured car loans mean the lender has the right to repossess the vehicle if you default on your repayments.
- Since secured loans are deemed less risky, this usually means lower rates and fees than unsecured products.
- There may be limits on the vehicle you can buy with a secured loan, so if you're looking at something deemed riskier an unsecured loan might be your best bet.
Just like home loans, car loans can be unsecured or secured. Here's what to know about the differences:
What is a secured loan?
A secured car loan means an asset (usually the car you’re buying) is used as collateral against the loan. This means that in the event that you fail to meet your repayments, the lender has the right to repossess the securitized asset to get what it's owed. Most of the time when someone says car loan, they are referring to a secured car loan.
The benefit for borrowers is that since the securitization arrangement gives the lender extra insurance, rates on these products are generally lower than unsecured alternatives. The fees may also be lower and you might find it easier to get approval.
What else can you use as car loan security?
Some lenders allow alternative securities to be used instead of the vehicle you're buying. Alternatives can include:
- A valuable asset you already own
You may be able to secure the loan against a different asset that you already own, like a different vehicle or even a term deposit. Newcastle Permanent and Greater Bank are two examples of lenders that explicitly allow this on their secured personal loans. Conditions generally apply though - for example, Greater Bank only allow brand new caravans or motorbikes to be used as security, or cars that are less than seven years old.
You might find banks are less willing to accept smaller valuable personal items like jewelry as collateral for a personal loan. Pawnbrokers like Cash Convertors offer loans secured against jewelry, but rates tend to be extremely high
If you've got a home loan, you might be able to refinance to borrow what you need to buy your new vehicle. Since home loan rates are generally lower than secured car loan rates, this can be a cost-effective option - although keep in mind if you can't make your repayments you're still running the risk of your property being repossessed.
What is an unsecured loan?
Unsecured car loans meanwhile don't require any collateral. If you can't make your repayments, your lender can't take back the car you've bought, although you might end up having to sell the vehicle via court order if you have to enter insolvency. That means it's a riskier loan for the lender, since recouping the costs if you stop making your repayments can be far more complicated than just sending the repo men around. Unsecured car loans are the same thing as unsecured personal loans
To compensate for this heightened risk, lenders offering unsecured car loans may charge a higher interest rate or fees, and probably won’t be as lenient with who they lend to. If for example your credit score has taken a few hits recently, you might have less luck getting approved for an unsecured loan.
Why go unsecured?
Despite the greater cost there can still be a few benefits to choosing an unsecured product:
- Vehicle isn't at risk: Going unsecured means if you can't pay your debts, your lender can't just take back the car. This can give you more flexibility if you do run into financial trouble - you might be able to hold on to your car and sell other less essential effects to pay your debts.
- Can buy any vehicle: Most secured car loan products specify what kind of vehicle you are allowed to buy. If you're looking at an older used vehicle you might have trouble finding a lender willing to use it as security, as older cars are at a higher risk of dramatic depreciation or breaking down altogether.
- Can borrow beyond the vehicles value: Secured car loans also may have Loan-to-value ratio (LVR) restrictions, which can mean you can only borrow up to a certain amount relative to what the car is worth. If you're looking for a loan to also cover expenses like insurance or registration, an unsecured product might be more suitable.
Secured vs unsecured car loan interest rates
The interest rates tend to be significantly higher on car loans that are unsecured. To illustrate the gap, as of January 2026 these were rates for unsecured and secured car loans at some of Australia's biggest lenders:
| Secured Car Loan (Fixed) Representative Rate | Fixed Rate Unsecured Personal Loan Representative Rate | |
|---|---|---|
| Commonwealth Bank | 6.29% p.a. - 10.29% p.a. (7.71% p.a. - 11.66% p.a. comparison rate*) | 7% p.a. - 22% p.a. (8.05% p.a. - 22.88% p.a. comparison rate*) |
| Westpac | 6.49% p.a. - 12.99% p.a. (7.90% p.a. - 14.34% p.a. comparison rate*) | 7% p.a. - 21.99% p.a. (8.41% p.a. - 23.28% p.a. comparison rate*) |
| NAB | 6.49% p.a. - 13.29% p.a. (8.05% p.a. - 14.79% p.a. comparison rate*) | 7% p.a. - 21% p.a. (8.05% p.a. - 21.88% p.a. comparison rate*) |
Secured vs unsecured car loan fees
Depending on the lender, unsecured products may also charge higher loan establishment, or ongoing monthly, fees. This particularly applies to non-bank personal credit lenders - Wisr for example currently charges an establishment fee of $595 on unsecured personal loans. These fees are usually added into the loan amount, so accumulate interest.
This is what makes comparison rates so useful, since the rate incorporates these extra fees as well as the interest rate to calculate the total cost of the loan. A comparison rate that's far higher than the advertised rate usually means high fees.
Savings.com.au’s two cents
Most car loans are secured - it feels logical to secure a loan against the asset you're buying. With costs generally lower if you're able to secure the loan it usually makes sense to do so. If you've got a mortgage, since home loan rates are generally lower than car loan rates it also probably makes sense for you to refinance your home loan to borrow what you need.
You might also be apprehensive about the possibility of the vehicle being repossessed, but you should keep in mind that unsecured loans don't release you from your debt obligations. Your lender is still going to pursue you for what you owe, which might end up meaning you need to sell the car anyway, so it generally isn't advised to pay higher rates just to avoid securitization.
Unsecured loans might come into play if securing the loan isn't an option. For example, if you're buying a vehicle lenders deem too high risk to use as security, unsecured loans might be your only way to finance it. Keep in mind though that if your lender won't use your prospective new vehicle as security it's probably for a good reason, so you might just want to make sure the vehicle you've chosen is the best choice.
In the market for a new car? The table below features car loans with some of the lowest interest rates on the market.
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Vehicle Type | Maximum Vehicle Age | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 7.07% p.a. | $579 | Variable | New | $8 | $400 | $34,749 |
| Promoted | Disclosure | |||||||||
5.67% p.a. | 6.10% p.a. | $575 | Fixed | New | $0 | $350 | $34,524 |
| Promoted | Disclosure | |||||||||
5.95% p.a. | 5.95% p.a. | $579 | Fixed | New | $0 | $0 | $34,757 |
| Promoted | Disclosure |
Originally published by William Jolly in 2020. Last updated 2026
