Unsecured personal loans can be one of the easiest ways to get credit fast, but you need to understand what you're getting into first.
What is an unsecured personal loan?
An unsecured personal loan is a loan that doesn't require any collateral. It's the opposite of a secured loan, where a borrower offers an asset (a car, property, etc.) that the lender has the right to repossess if the borrower stops making their repayments. Unsecured loans are seen as riskier by lenders, so often have higher rates and fees compared to secured products.
Unsecured v secured loans
The main difference between unsecured and secured loans is that if the borrower stops paying, the lender can simply take back the securitised asset. If you stop paying your car loan (secured against the vehicle), you might come home one day to find the repo men loading your car onto a tow truck.
While unsecured loans don't give the lender a direct claim over a specific asset, borrowers still have a legal obligation to repay what they owe. Lenders have the right to take legal action against delinquent borrowers, which may result in a court order that requires the borrower to sell some assets. If you bought your car with an unsecured loan and stop paying, the lender can't just send the boys round to get the car, but you may eventually be forced to sell the vehicle anyway to come up with what you owe. Still, it's a much lengthier and complicated process, which is why lenders see unsecured loans as higher risk.
Should I get an unsecured personal loan?
Pros of unsecured personal loans
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No security: You don’t need to offer up an asset to take out an unsecured personal loan.
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Quick credit: With secured loans the lender needs to verify your asset for security. For example, if you're offering up your car you may need registration documents, insurance documents, or a valuation. If your loan is unsecured this isn’t necessary, so the application and approval process can be quicker.
- Loan purpose: You can typically use unsecured personal loans for a variety of purposes. Whether you're paying for a wedding, a holiday, or a boat, there likely won't be restrictions on how you spend what you're borrowing.
Cons of unsecured personal loans
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Higher interest rate or fees: Unsecured personal loans generally have higher rates than secured products. According to RBA data, the average rate on outstanding fixed-term personal loans in December 2025 was 8.52% p.a., while for loans secured against a property the average outstanding rate was 5.67% p.a. Some lenders have low rates, but charge very high fees on unsecured loans, making the overall cost higher.
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Impact on credit score: Missed or late payments on an unsecured personal loan can negatively impact your credit score.
Savings.com.au’s two cents
Before you apply for an unsecured loan, really think about whether you need it. If you're buying a car for example, secured loans generally have lower rates so it probably doesn't make sense not to secure the loan against the car. When securing the loan isn't an option, make sure you're comfortable with exactly how much you're going to spend in interest over the loan term before going ahead. Can you really afford to go skiing in the Alps if you need a loan to pay for it?
It's important to make sure you aren't borrowing more than you need - if your wedding will cost $35,000, don't round up to $50,000. The extra money might sound handy, but that's $15,000 extra that you're paying interest on over several years. At 8% p.a. on a five year term, that would mean paying nearly $3,500 more in interest all up.
How to compare unsecured personal loans
When comparing unsecured personal loans, there are several key aspects to consider.
Interest rate
You should look at the interest rate advertised, as well as whether this rate is variable or fixed. A fixed rate remains the same throughout the life of your loan, while variable rates can go up or down depending on the cash rate or market activity.
Fees
You also need to look at exactly what fees and charges apply to the loan. If a loan has a low interest rate, but lots of fees and charges like an upfront application fee, establishment fee, and so on - it may not end up being such a great bargain. Checking the comparison rate, which takes fees into account as well as interest, can be a good way to compare different products.
Loan size
Different lenders have different minimum and maximum loan amounts, so you'll need to find one willing to lend the amount you're after.
Eligibility
Some lenders have different criteria with regards to who they will lend to. If you've got a patchy credit score, you might need to focus on lenders that specialise in bad credit loans - you might find banks reject you out of hand.