What is the Difference Between a Secured and an Unsecured Loan?

What is a Secured Loan?

A secured loan is a loan backed by an asset you own, such as a motor vehicle in the case of Trusty Finance. The lender uses this asset as a form of security if the loan is not repaid as agreed.

Because the lender has this extra security, secured personal loans often come with more flexible approval criteria and can be easier to access if your credit history is not perfect. The loan amount, in many cases, is linked to the value and condition of your vehicle and your capacity to repay.

What is an Unsecured Loan?

An unsecured loan does not use an asset as security. Approval is based mainly on your income, credit history, existing debts, and general ability to meet repayments.

Because the lender takes on more risk without an asset attached to the loan, unsecured loans may have stricter eligibility rules and can come with higher interest rates or lower maximum loan amounts compared with similar secured loans.

Key Differences Between Secured and Unsecured Loans

If you’re wondering what the difference between a secured and an unsecured loan is, it helps to compare how they work in a few core areas:

Security

• Secured loans use an asset (like your car) as security.
• Unsecured loans do not use an asset.

Risk and Cost

• Secured loans usually present less risk to the lender, which can mean more competitive rates or more forgiving lending criteria.
• Unsecured loans have more risk for the lender, which can be reflected in higher rates or lower borrowing limits.

Eligibility

• Secured loans can suit borrowers who have a stable income but may not have a perfect credit score.
• Unsecured loans often suit borrowers with stronger credit profiles and lower existing debt.

Pros and Cons of Secured Loans

A secured loan comes with some clear benefits as well as a few important trade-offs to think about before you apply.

Benefits of Secured Loans

• If there are a few bumps in your credit file, you may have a better chance of the lender approving your application when they use your vehicle as security.
• You may be able to access more competitive interest rates than you could with an unsecured option from some providers.
• You can use the funds for a range of purposes, like home improvements, medical costs, education costs, or consolidating smaller debts, as long as this fits the lender’s criteria.

Drawbacks of Secured Loans

• If you miss repayments or default on the loan, the lender can take steps that ultimately put your vehicle at risk.
• You generally need to own a suitable vehicle in your name to qualify, which means these loans are not available to everyone.

Pros and Cons of Unsecured Loans

Unsecured loans also have their own mix of advantages and drawbacks that are worth weighing up against your goals.

Benefits of Unsecured Loans

• You do not need to use your car or another asset as security, which can suit people who do not own a vehicle or prefer not to use it for this purpose.
• The application process may feel simpler if you are not providing details about an asset on top of your income and identity information.

Drawbacks of Unsecured Loans

• Approval may be harder if your credit history is limited or has missed payments, because the lender carries more risk.
• Interest rates and fees can be higher than comparable secured loans from some lenders.
• You may only qualify for smaller loan amounts, depending on your income and existing debts.

How a Trusty Finance Secured Personal Loan Works

Trusty Finance offers secured personal loans between $2,100 and $5,000, using your motor vehicle to support the loan. The process is built to be straightforward for busy Australians who are working full-time or part-time and want clear, transparent lending.

You apply online, provide your details and supporting documents, and Trusty Finance assesses your income, expenses, and vehicle to match you to a suitable loan amount and term. There are no hidden fees, and everything is set out clearly so you know exactly what to expect across the life of the loan. Funds can help with things like home repairs, medical or dental costs, education expenses, car expenses, or important life milestones.

Which Loan Type Could Suit You?

If you are comparing the difference between a secured and an unsecured loan for your current situation, you may want to consider:

• Do you own a vehicle in your name that you are comfortable using to support the loan?
• Is your credit history strong, or would added security make approval more achievable?
• Are you looking for clear, straightforward repayments with a smaller loan amount that fits into your budget?

Get a Loan That’s Right For You

For many everyday borrowers, a secured personal loan with clear repayments and terms can be a practical way to manage one key goal at a time – whether that’s boosting your budget for your dream wedding, covering rent or bond payments, or helping to cover costs in an emergency.

If you want to explore how a Trusty Finance secured personal loan could fit your plans, check out how it works to learn more.

FAQ

Which is better secured or unsecured loans?

The best choice depends on your goals, your comfort with using your vehicle to support the loan, and the lender’s terms. A secured loan can be better if you own a suitable vehicle, want a clear structure, and would benefit from the added support that security can provide in the approval process. An unsecured loan can suit you if you prefer not to use an asset and you have strong income and credit to support the application. 

What is bad about an unsecured loan?

Unsecured loans can come with some drawbacks. Because there is no asset attached, the lender may charge higher interest, offer lower maximum amounts, or apply stricter approval criteria. If your credit history is not strong or your existing debts are high, it can also be harder to get approved, which may limit your options.

Why is a secured loan better?

A secured loan can be better when you want a clearer path to approval and a structured way to manage a specific goal. Using your vehicle to support the loan may help you access finance even if your credit file is not perfect, and it can allow the lender to offer terms that are easier to manage. As long as you stay on top of repayments and only borrow what fits comfortably into your budget, a secured loan can be a practical way to move forward with your plans while keeping your costs predictable.