When you finance a car in Australia, you’re really choosing between two things: a secured car loan or an unsecured loan. And here’s the part that trips people up — an unsecured car loan and a “personal loan” for a car are essentially the same product wearing different labels. Sort out the secured-versus-unsecured question and you’ve answered the car-loan-versus-personal-loan question at the same time.
This guide untangles all three terms, shows the real rate difference, and helps you work out which is genuinely cheaper for your situation.
The one distinction that matters: is the car security?
Every car finance option comes down to a single question: does the lender hold your car as security?
- Secured car loan — the loan is backed by the car itself. If you don’t repay, the lender can repossess and sell the vehicle to recover its money. Less risk for the lender means a lower interest rate for you.
- Unsecured loan — nothing is held as security. The lender is relying purely on your promise to repay, so it carries more risk and charges a higher rate to compensate.
That’s the whole framework. Everything else — limits, terms, fees — flows from it.
Where does a “personal loan” fit in?
This is the bit that confuses people, so let’s be direct: an unsecured car loan IS a personal loan. When a lender advertises an “unsecured car loan,” it’s a personal loan you happen to be spending on a car. There’s no separate, secret product.
The label can differ slightly in practice:
- A secured car loan is specifically tied to the vehicle and usually has conditions about the car’s age and condition (because the car has to be worth repossessing).
- A personal loan (unsecured) can be spent on almost anything — a car, a wedding, renovations — and doesn’t tie itself to a particular asset.
So when you see “car loan vs personal loan,” what’s really being compared is secured (against the car) vs unsecured (a personal loan). Same decision, different words.
The rate difference — and why it exists
This is where the choice gets expensive or cheap. Across the Australian market:
- Secured car loans average around 12% p.a., with the sharpest secured rates starting in the mid-5% range for newer cars and strong borrowers.
- Unsecured personal loans average around 15% p.a., and frequently push well into double digits.
That’s roughly a 3 percentage-point gap on average — and unsecured rates can sit anywhere from 2% to 5% above an equivalent secured loan. (All figures are market examples only and change over time.)
The reason is simply risk. With a secured loan the lender can recover the car if you default, so it prices the loan lower. With an unsecured loan there’s no asset to fall back on, so the rate — and often the establishment and ongoing fees — sit higher.
Over a five-year loan, a 3% rate difference on a typical car balance adds up to thousands of dollars in extra interest. That’s the real cost of the unsecured/personal route.
Secured car loan: pros and cons
Pros
– Lower interest rate — usually the cheapest way to finance a car.
– Higher borrowing limits and longer terms available.
– Lower total interest over the life of the loan.
Cons
– The car is on the line — default and the lender can repossess it.
– Usually restricted to vehicles within certain age and condition limits.
– The car typically must be the one being financed (less flexibility).
Best for: buying a newer car, borrowing a larger amount, and anyone who wants the lowest total cost.
Unsecured / personal loan: pros and cons
Pros
– No asset tied up — the car isn’t at risk of repossession by the lender.
– Flexible: can fund an older car, a private sale, or extra costs a secured loan won’t cover.
– Approval can be quick and the funds aren’t restricted to one purpose.
Cons
– Higher interest rate and often higher fees.
– Lower borrowing limits and shorter terms.
– Costs more in total interest than an equivalent secured loan.
Best for: older or cheaper cars that don’t meet secured-loan criteria, private-sale purchases, or borrowers who simply don’t want the car held as security.
Which is cheaper for you? A quick decision guide
| Your situation | Likely best fit |
|---|---|
| Buying a newer car, want the lowest rate | Secured car loan |
| Borrowing a larger amount over a longer term | Secured car loan |
| Buying an older car a secured lender won’t accept | Unsecured / personal loan |
| Private sale or need to cover extra costs | Unsecured / personal loan |
| Don’t want the car at risk of repossession | Unsecured / personal loan |
| Lowest total interest is the priority | Secured car loan |
The pattern: secured wins on cost; unsecured wins on flexibility. If the car qualifies and you’re comfortable with it as security, secured is almost always the cheaper road. If the car is old, you’re buying privately, or you want the loan untied from the vehicle, the unsecured/personal route earns its higher rate by giving you freedom.
A note on balloon payments
Either type of car loan can be structured with a balloon (residual) payment to lower your monthly repayments — but, as with any deferral, that lowers repayments at the cost of more total interest. If you’re weighing it up, see our companion guide on balloon payment car loans (linked below) before you decide.
Frequently asked questions
Is a car loan secured or unsecured?
It can be either. A “car loan” advertised as secured is backed by the vehicle. An unsecured car loan is effectively a personal loan spent on a car, with no asset held as security. The secured version is usually cheaper; the unsecured version is more flexible.
Is an unsecured car loan the same as a personal loan?
Essentially, yes. An unsecured car loan is a personal loan you’re using to buy a car. The main difference from a secured car loan is that nothing is held as security, which is why the rate is higher.
How much cheaper is a secured car loan?
On average, secured car loans run around 3 percentage points below unsecured personal loans (roughly 12% vs 15% p.a. as market examples), and the gap can be 2%–5%. Over a five-year loan that can mean thousands of dollars less interest.
When should I choose an unsecured or personal loan instead?
When the car is too old for a secured lender, you’re buying privately, you need to cover costs beyond the car, or you simply don’t want the vehicle held as security. You’ll pay a higher rate for that flexibility.
Does a secured loan mean the lender can take my car?
Yes — that’s what “secured” means. If you default on a secured car loan, the lender has the right to repossess and sell the car to recover what it’s owed. It’s the trade-off for the lower interest rate.
Written and reviewed by the Finance Director at Alpha390.
This article is general information only and does not constitute credit or financial advice. It does not take into account your personal objectives, financial situation or needs. Consider whether the information is appropriate for you and seek professional advice before acting. All interest rates are market averages and examples only and are subject to change. Where a comparison rate applies, it is based on a specific loan amount and term and may not include all fees and charges; different terms, fees or amounts may result in a different comparison rate. Alpha390 operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees.
