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If you’re looking to buy a new car, fund a wedding or consolidate some debts, then you may have considered a personal loan.

Personal loans are a popular way to finance large purchases or consolidate debt, and there are two main types: ‘secured’ and ‘unsecured’. Understanding the differences between secured and unsecured personal loans can help you make an informed decision when choosing the best loan option for your financial situation.

The difference

Secured personal loans

secured personal loan is backed by collateral, such as a car or other vehicle. This means if you default (fail to make the required interest or principal repayments) on the loan, the lender can seize the collateral to recover their losses. Because secured loans are less risky for lenders, they often come with lower interest rates and higher borrowing limits.

Loans that are used to finance the purchase of a car are usually ‘secured’ loans, and the car serves as the collateral. Secured loans can also be used to buy boats, motorcycles or caravans.

Unsecured Personal Loans

An unsecured personal loan is not backed by collateral. Instead, lenders rely on your credit history and your income and expenses to determine your eligibility. Some lenders will also use this information to set your interest rate. As unsecured loans are deemed to be riskier for lenders, they often come with higher interest rates and lower borrowing limits.

Unsecured loans are often used for debt consolidation or paying for weddings, travel and medical procedures.

Which personal loan is right for you?

The type of loan that is right for you all depends on your financial situation and borrowing needs. You need to first ask yourself why you need the loan and then consider these important points:

  • Credit score: If you have a low credit score, you may have a harder time getting approved for an unsecured loan. A secured loan may be the better option if you have collateral to offer.
  • Interest rates: Secured loans often come with lower interest rates, but you risk losing the collateral you put up if you default on the loan. Unsecured loans may have higher interest rates, but you won't be at risk of losing any collateral.
  • Borrowing needs: If you need to borrow a large amount of money, a secured loan may be the better option. If you only need to borrow a small amount, think about an unsecured loan instead.

Remember, it's important to ensure you don’t borrow more than you can afford to repay. Although you won’t have collateral to lose with an unsecured loan, if you fail to keep up with the repayments the lender will try to recover the funds another way, and your credit history/rating will be impacted.  

Use our repayment calculator to see what your regular repayments could be on a personal loan and whether you could afford to repay it.

P&N Bank’s personal loans

Our car loans and personal loans have competitive interest rates, low fees and offer you flexible repayment options. Other features we think you’ll love:

  • Choose a term from one to seven years.
  • Loan amounts starting from $5,000.
  • No early payout fees.
  • Access any extra payments you’ve made, thanks to the redraw.

To sum up, personal loans can be a useful tool for financing large purchases or consolidating debt. Whether you choose a secured loan or an unsecured loan, make sure to shop around and compare lenders to find a personal loan that fits your needs and budget. Ultimately, the best type of personal loan for you will depend on your individual circumstances.


Banking and Credit products issued by Police & Nurses Limited (P&N Bank) ABN 69 087 651 876 AFSL/Australian Credit Licence 240701. Any advice does not take into account your objectives, financial situation or needs. Read the relevant T&Cs, before downloading apps or acquiring any product, in considering and deciding whether it is right for you. The Target Market Determinations (TMDs) are available here or upon request.