You have two or three personal loan offers open, and one of them asks for security. The temptation is to sort by interest rate and stop there. That comparison misses the part that actually changes your life if things go wrong: what the lender can reach for when repayments stop.
This guide sets the factors out side by side — rate, comparison rate, fees, security, term and default consequences — so you can line offers up on the same basis and choose the one that fits the risk you can genuinely carry.
Secured and unsecured: what actually changes
A personal loan lets you borrow money for things like a car, holiday, or home improvement, according to MoneySmart's personal loan guidance. The same purpose can be funded either way. The difference is what sits behind the loan:
- Unsecured — no asset is named as security. You borrow on your income and credit history.
- Secured — a specific asset is named in the contract, and the contract sets out what the lender can do with it if you stop paying.
The consequences diverge sharply. MoneySmart notes that if you don't repay an unsecured loan, the lender can take legal action to recover the money. A secured loan answers the same problem with the asset itself. Before comparing anything else, read the security clause and ask the lender to explain in writing what triggers their rights and what happens to the asset.
That makes this a risk-allocation decision, not a quality judgement. Neither structure is inherently better; they suit different borrowers and different purposes.
Compare total cost, not the headline number
The advertised rate is one input. Three others decide what you pay:
- The amount you draw and the term you repay over — the same rate over a longer term costs more in interest.
- Fees charged along the way.
- What happens if you pay early, or late.
MoneySmart provides a personal loan calculator to estimate your repayments and compare how different loans affect the total cost. Run each offer through it using your real figures — your amount, your term — rather than the round numbers in the advertisement.
The comparison rate helps, but it is not a shortcut. As MoneySmart notes, comparison rates vary depending on the loan terms and are only accurate for the example given. If one offer's comparison rate is built on an example amount and term quite different from yours, the ranking it implies may not hold for you. Always check the amount and term printed beside the figure before treating it as a league table.
Fees, and the cost of a stumble
If you miss a payment, you may pay a fee and fall behind on your loan — MoneySmart's wording, and the reason the fee schedule deserves as much attention as the interest rate. Ask for every fee in writing:
- Establishment or application fee, and whether it is added to the loan balance (in which case you pay interest on it)
- Ongoing monthly or annual fee
- Late payment or missed direct debit fee
- Early repayment or payout fee, including how the payout figure is calculated
- Discharge or release fee at the end of the loan
- For secured offers specifically: any valuation, registration, insurance or release costs tied to the asset
A modestly higher rate with low fees can cost less overall than a low-rate loan that charges at every interaction. Only your own numbers will tell you which, which is why the total-cost figure matters more than any single line item.
Side-by-side checklist
| Factor | What to check in a secured offer | What to check in an unsecured offer |
|---|---|---|
| Interest rate | The rate that applies to your amount and term | Same — compare like for like |
| Comparison rate | Which amount and term the figure assumes | Same; MoneySmart notes it is accurate only for the example given |
| Security | Which asset is named, and what the lender can do with it | No asset named; default can lead to legal action to recover the money |
| Fees | Establishment, valuation, registration, insurance, discharge | Establishment, ongoing, late payment, early payout |
| Term | Whether early payout is allowed and what it costs | Same |
| Default outcome | Ask for the clause reference and an explanation in writing | Legal action to recover the money, per MoneySmart |
Match the structure to the risk you can carry
Three questions do most of the work:
- Could you lose the asset without it wrecking your finances? If not, security over it is expensive whatever the rate says.
- How stable is the income servicing the repayments? Casual work, commission, or a business with lumpy cashflow argues for caution about committing an asset.
- Do you have any buffer? Repayments set aside turn a bad month into a setback rather than a default.
It is also worth asking whether the borrowing justifies its own structure. A car purchase can sometimes be funded against the car itself. A holiday generally cannot — and funding one against the family home changes the stakes considerably. That judgement is yours, not the lender's.
Questions to put to the lender before you sign
- What is the exact interest rate applying to my amount and term?
- What amount and term does the comparison rate assume?
- Which asset is named as security, and what happens to it if I default? Give me the clause reference.
- Am I borrowing in my own name, or guaranteeing someone else's loan?
- Please list every fee, and tell me which ones are added to the balance.
- If I pay it out early, how is the payout figure worked out?
- If I miss a payment, what happens, in what order, and on what timeline?
- Can I take a copy of the full contract away to read?
Those answers are the offer. Anything the lender cannot put in writing is not a feature you can rely on later.
Your next steps
- Shortlist two to four offers, mixing secured and unsecured where both are available to you.
- Enter your real amount and term into MoneySmart's personal loan calculator for each one and record the total cost.
- Request the fee schedule and the contract, and read the security and default clauses before comparing anything else.
- Compare on total cost, then confirm the consequences of falling behind are ones you could live with.
- Align repayments with your pay cycle and keep something aside for a bad month.
If you want the comparison steps laid out in order before you start talking to lenders, see our page at /match/.
General information only
This article is general information about personal loans in Australia. It is not financial, credit or legal advice, and it does not account for your income, debts, credit history or goals. It does not predict whether any lender will approve you or what it will charge you. Rates, fees and contract terms change and differ between lenders, so confirm current figures and definitions directly with the lender and against MoneySmart's personal loan guidance at moneysmart.gov.au before applying. Where debt is already difficult, a free financial counsellor is a reasonable next call.