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| Secured loan | Instalment loan | Home equity loan | |
|---|---|---|---|
| Rate range | 8.99 - 29.9% APR | 5.98 - 35% APR | 4 - 17.99% APR |
| Interest charged on | The full amount from day one | The full amount from day one | The full amount from day one |
| Repayment | Fixed instalments, set end date | Fixed instalments, set end date | Fixed instalments, registered against the home |
| Re-borrow without reapplying | No | No | No |
| Best when | An asset can back the loan and cut the rate | You know the amount and want a payoff date | A large cost and meaningful equity in your home |
| Watch out for | The asset is at risk if payments stop | Interest on funds you may not need | Setup and legal costs; your home secures the debt |
A secured loan pledges an asset. The lender registers an interest and can realise on it if the loan defaults.
What you get: a lower rate, a larger available amount, and approval where unsecured lending declines.
What you give: recourse. A default on unsecured debt damages your credit. A default on secured debt damages your credit and costs you the asset.
In Canada the rate benefit is compressed by the 35 percent federal cap on interest, which narrows the gap between secured and unsecured more than it would in a market without a ceiling. That is worth factoring in, because the trade is less favourable here than the general argument for secured borrowing suggests.
Not what the asset is worth. What the lender can recover, and how easily.
Loan to value is the governing ratio, and it differs sharply by asset. Real property lends deepest. Depreciating assets lend shallowest and shortest.
Marketability matters as much as value. An asset worth a great deal that takes a year to sell is weaker security than a cheaper one that sells in a week.
Existing charges. Security registers in order, and an earlier interest outranks a later one. Borrowing against an asset that already carries a charge means lending behind that charge, which prices accordingly.
More often than the rate comparison suggests.
If the amount is within unsecured reach, the rate difference is modest under the cap, and the asset is one you rely on, unsecured is the better structure even at a higher rate. You are buying the absence of an asset consequence, and that is worth paying for.
Secured borrowing makes sense when the amount is genuinely beyond unsecured reach, or the rate gap is large enough to matter over the term.
A loan with an asset pledged as security. The lender registers an interest and can realise on the asset if the loan defaults.
Generally, because the lender has recourse. Ability to repay is still assessed.
Less than you might expect in Canada, because the 35 percent federal cap compresses the range.
The lender discharges the registration. Confirm the process and timeline, since a registration left in place blocks a future sale.
