Secured
A loan backed by an asset, which the lender can sell to recover its money if the loan is not repaid.
For a car loan, the asset is usually the car itself: if repayments are not met, the lender can take the vehicle and sell it to cover the loan.
Unsecured
A loan with no asset as security. Moneysmart’s glossary says the interest rate is usually higher, because the lender carries more risk of not getting its money back.
If an unsecured loan is not repaid, the lender can take legal action to recover the money.
Some lenders may ask for a guarantor, who agrees to repay the loan if the borrower can’t; Moneysmart says this can put the guarantor’s finances at risk.
The difference shows in the advertisement
The National Credit Code makes a credit advertisement state, for certain amounts, whether its comparison rate was worked out for a secured loan or an unsecured one; the word “secured” or “unsecured” is enough. The regulations name those amounts as $10,000 and $30,000. In this guide’s reading, the point of the rule is that a secured rate and an unsecured rate are not like for like, so two advertised comparison rates are best read with that word beside them. The comparison rate guide goes further into how the rate is built.
How a lender sizes up the car
When a car is security, its value sets limits on both sides. ASIC’s 2026 review of car lending explains that the value of the car affects how much can be borrowed against it, and how much the lender can recover if the car is surrendered or repossessed and sold.
All the lenders ASIC reviewed assessed a car’s value through a third-party platform based on the car’s specifications, known as its “book value”. Most adjusted it for the car’s reported condition and accessories, information often supplied by the dealer or broker, and used the verified value to set the loan-to-valuation ratio. Most of the lenders limited their secured car loans to cars no older than 15 years when the loan ends, and a limited number financed cars up to 25 years old at that point.
When the car is worth less than the loan
Security does not mean the car always covers the debt. Moneysmart’s warning is that if the car has to be sold to meet the loan, the price may not cover the full debt, leaving the loan still being paid after the car is gone.
What happens when repayments stop, and where to get help, is set out on Moneysmart’s page on repossessed cars.
A used car can carry someone else’s security
Moneysmart’s page on buying a car explains how to check a used car for a seller’s unpaid loan before buying it.
Questions the sources raise
- Is the loan secured over the car, and what happens to the car if repayments are missed?
- If it is unsecured, how much higher is the rate, and is a guarantor being asked for?
- When comparing advertised rates, are both for secured loans, or both unsecured?
- Is the price being paid close to the car’s value, given what ASIC found about purchase prices above book value?