5 Differences Between Secured and Unsecured Loans

Though understanding lending terms can be difficult, if you’re thinking about applying for a loan it’s important to know your options. 

This article will take you through the main differences between both secured and unsecured loan options, and some scenarios where each option may be suitable. 

On this page:

• What is a secured loan?
• What is an unsecured loan?
• What are the main differences between secured and unsecured loans?
• Pros and cons of secured vs unsecured loans
• Which loan option is best for me?

What is a secured loan?

A secured loan is a type of loan that requires security, also known as collateral. This means that you will attach something of value to your loan contract, which can be repossessed by the lender in the event that you are unable to meet your repayments.

Common examples of secured loans include:

• Secured personal loans, where you might buy an item that is then offered as a security
• Car loans, where the car is the asset secured against the loan
• A home loan, where the property itself can be re-sold by the bank or lender if you can’t meet your mortgage repayments.  

Depending on the lender, you could also use items such as other vehicles, valuable items (like jewellery or artwork) and even cash savings or term deposits as security on a personal loan. 

What is an unsecured loan?

Unsecured loans, as the name might suggest, do not require any kind of security in the loan contract. This can represent a higher risk to the lender, so you’ll usually need to provide evidence that you can definitely repay the loan. Otherwise, the lender could potentially pursue legal action if you can’t, but it’s more likely that you’ll just receive less favourable loan terms instead. 

What are the main differences between a secured and unsecured loan?

There are five key differences between the two types of loans:

1. Security 

The most obvious difference between secured and unsecured loans is in the name: the security. 

A secured loan is a loan that has collateral attached to it, which is referred to as security. This collateral often comes in the form of a vehicle like a car. If a customer has a secured loan and is unable to pay back the loan, the lender has the right to possess the collateral to compensate for losses. 

An unsecured loan does not require collateral. 

2. Borrowing limits 

By adding security to a loan, you could have a higher chance of securing a larger loan amount. By adding security, you could be deemed a less risky borrower and be eligible to borrow more.

For example, at Jacaranda Finance, our personal loans can be used to borrow a maximum of $25,000, but we offer unsecured loans up to $15,000 and ask for security beyond that. 

Unsecured loans could typically be good for things like vet bills, white goods, car repairs and other medium-sized expenses. Secured loans, however, tend to be more suitable for bigger expenses, like large holidays, weddings, debt consolidation and home renovations. 

3. Loan terms

Much like the borrowing limit, a secured loan typically has a longer length compared to an unsecured loan. As a generally more trustworthy borrower, someone with security attached to their loan contract might make a lender more confident in their ability to repay a loan over a longer time period. 

At Jacaranda Finance we’re flexible with our repayments, meaning you have the option to choose a longer loan term of up to 48 months on our express personal loan (48 on our car loan). If all you want to do is pay back your loan and get back to living life, you can opt for a shorter term as well. 

4. Interest rates 

By choosing a secured loan you could potentially access a lower interest rate compared to an unsecured loan as, again, the attachment of security could contribute to you being seen as a less risky borrower. The more reliable you appear in your application, the more favourable your loan contract can be. 

Having a good credit score can also help you access more competitive interest rates and loan terms. See our guide on improving your credit score for more information. 

5. Application speeds

As secured loans tend to require more upfront documentation (such as your car’s registration number, a purchase invoice and proof of comprehensive car insurance), the application process can take a bit longer. 

This can potentially be a benefit of using an unsecured loan instead, as there’s generally less information required when you begin your application. Ultimately though, the speed of your application will also depend on the lender. 

At Jacaranda:

• You can get started with an application and be done in as little as 5-12 minutes¹. This may take longer depending on your circumstances.
• Most applicants get a same-day outcome once the application is completed². Applying outside business hours or needing to provide more documentation could result in a longer wait.
• If you accept our loan offer by signing your digital contract the funds are usually in your bank account and ready to use within 60-seconds³ if you have an NPP-enabled bank account.

Advantages and disadvantages of secured and unsecured loans

We’ve collated what we think are the most important pros and cons of secured and unsecured loans into one place below. Bear in mind that these pros and cons can all be situational depending on your financial circumstances and the loan you’re applying for:

Secured or unsecured: Which loan option is best for me?

Depending on your needs, either a secured or unsecured loan could be the right loan option for you. Here are two examples of when a secured and unsecured loan might be suitable.

Example one: Rita chooses a secured loan 

Rita wants to renovate her backyard and is considering a couple of financial options. She estimates the potential expenses and creates a budget for the renovation: The total cost of the work will amount to around $8,500. 

Rita could use her savings to pay for the backyard blitz, but would rather keep them for a rainy day. She decides a personal loan could be a good option and applies for an $8,500 personal loan with Jacaranda Finance. 

Rita then attaches her Nissan Hilux as security to secure a larger loan amount and longer loan term, as she has a steady source of income and is confident she’ll be able to manage her repayments. 

After being assessed thoroughly, Rita receives the full amount she applied for to be repaid in manageable ongoing instalments for two years. Now it’s time to get to work!

Example two: David chooses an unsecured loan

David’s washing machine has recently been acting up. He’s had to pay for maintenance a couple of times over the past year and decides he needs to buy a new one. David has a young family and needs a decent washing machine quickly. 

David shops around and finds a bundle deal for a washing machine and dryer. A dryer would be a great addition to the family home. The bundle comes to around $5,000 - a bit more expensive than he initially planned but still a great deal, as he figures he’s buying for quality and longevity.

After assessing his financial options, David decides to apply for a white goods loan with Jacaranda Finance for $5,000. As this is a smaller loan amount, David isn’t required to attach security. David receives the money on the same day and snaps up that new washer-dryer combo, and before he knows it his laundry looks like a dream.

Jacaranda Finance secured and unsecured personal loans

At Jacaranda Finance, we offer both secured and unsecured personal loans to suit many purposes. Not only do we offer personal loans, but we also offer express secured car loans. Apply now for up to $25,000 and you could receive an outcome on the same day².

Written by - Jemima Kelly

Content Writer

Jemima Kelly is a Content Writer at Jacaranda Finance. She is enthusiastic about accurate and informative content, and holds a Bachelor of Creative and Professional Writing from QUT.

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