Secured Loans

More About Getting a Secured Loan in Canada

• What Are Secured Loans in Canada?
• Why are Secured Loans Popular?
• What Can I Use a Secured Loan For?
• What Can I Use as Collateral?
• Types of Secured Loan
• Factors to Consider When Comparing Loans
• Frequently Asked Questions About Secured Loans

What are Secured Loans in Canada?

Simply put, a secured loan is a loan that is backed by collateral. For example, a mortgage is a type of secured loan where the collateral is the house being mortgaged. An auto loan may be a type of secured loan if it is backed by the car being financed. If the borrower defaults on the loan, the lender can seize the collateral in lieu of payment - so in the case of a mortgage, this would be a foreclosure. Entrepreneurs may secure a secured personal loan made against a personal asset in order to finance a new business.

What are unsecured Loans?

Should you consider an unsecured loan?

Considering a Personal Loan

Why are Secured Loans Popular?

Secured loans are considered less risky to mortgage lenders because in the event of default, they have an asset to help cover the cost of the debt, a mortgage, and so are less likely to be out of pocket. This means that they can be easier to qualify for than unsecured loans, and often have more favourable terms. The downside to the borrower is that if you neglect the payments on your secured mortgage loan, you risk losing the asset or mortgage you used as collateral.

What Can I Use a Secured Loan For?

Secured loans are incredibly beneficial when you need to borrow money for a specific purpose and possess a valuable asset to use as collateral. These types of secured loans offer a pathway to access to funds by leveraging owned assets like home equity, car title, or even an investment portfolio. They can be utilized for a diverse array of needs, including securing a new loan for a business venture via a secured business loan, consolidating debt, or augmenting investments. The loan amount you can obtain depends on the appraisal value of the asset used as collateral, and often come with competitive interest rates compared to an unsecured loan.

Financing a new business

• Starting a new business often necessitates substantial capital, making secured loans a viable option for financing. Leveraging personal property or opting for a secured business loan can provide the required funds. The loan amount, determined by the collateral's appraisal value, offers competitive interest rates compared to an unsecured loan. Maintaining a clear repayment schedule is crucial to avoid losing the pledged asset. A good credit may lower interest rates, with bad credit secured loan options available for those with poor credit. Exploring online lenders or traditional financial institutions to compare options, and scrutinizing loan agreements for any fees is advisable to ensure the loan terms align with your business's financial plan.

Financing a home purchase or home renovations:

• Securing a mortgage or funds for home purchase or renovations often leads individuals towards secured loans like home equity or secured personal loans due to their favourable interest rates, with the loan amount determined by the collateral's appraisal value. These loans offer competitive rates, resulting in lower total interest and manageable payments compared to an unsecured loan. A good history of credit can potentially lower the interest rate, while those with poor credit might consider a poor credit secured loan. It's prudent to consult with a financial institution or credit union or explore online lenders to compare options, scrutinize loan agreements for any fees, and understand the repayment schedule. While secured loans alleviate financial strain, the risk of losing the collateral due to missed payments is a serious consideration. With careful planning and financial advisement, securing a loan can aid in achieving home ownership or renovation goals.

Purchasing a car or other vehicle:

• Secured loans, like auto loans or car title loans, are popular choices for financing vehicle purchases due to their lower interest rates, with the vehicle itself serving as collateral. The loan amount is typically determined by the vehicle's appraisal value, which often results in lower monthly payments compared to unsecured personal loans. Even individuals with a poor history of credit may access bad credit secured loans, though possibly at higher rates. It's advisable to approach a financial institution or credit union or explore online lenders to compare loan options and understand the loan terms, including any origination or late fees. While secured loans offer a structured way to finance a vehicle purchase, the risk of losing the vehicle due to missed payments is a significant consideration that necessitates thorough financial evaluation before proceeding.

Alleviating cash flow problems:

• Secured loans, like a home equity line of credit or secured personal loans, can be a lifeline when liquidity is essential. By using your own assets as collateral, you can gain access to funds with lower interest rates compared to unsecured personal loans, thus easing the repayment schedule. It's crucial to have a good credit score to optimize loan terms, although a bad credit-secured loan might be an alternative. Engaging a bank or credit union for these loans, scrutinizing the loan agreement for origination fees, and ensuring a manageable monthly payment plan can pave the way for smoother financial sailing, while also potentially consolidating debt and enhancing your credit report over time.

Securing a credit card (to gain access to a credit card when you have no or bad credit history):

• Securing a credit card, especially with no or bad history of credit, can be a hurdle. Opting for secured credit cards can be a viable solution. In this arrangement, a specific asset or a cash deposit for collateral, providing a credit line while also aiding in building or repairing your history of credit. The credit limit typically mirrors the deposited amount. Although the interest rate may be higher compared to standard cards, timely monthly payments can improve your credit score, opening doors to unsecured credit card options in the future. It's advisable to compare loan options, scrutinize any associated fees like annual or late payment fees, and consult with a bank or credit union or explore online lenders to find a secured credit card that aligns with your financial circumstances. Over time, prudent management of a secured credit card can transition you from having bad credit to establishing a healthier financial profile, thus alleviating the initial credit hurdles.

Secured loans can also be a great way to consolidate debt, to build your credit score, if you are new to Canada, or to repair poor your credit score and history. Accessing a secured loan will be easier in both instances than accessing an unsecured loan; by making all of your other loan payments more promptly you will build positive credit.

What Can I Use as Collateral?

Collateral comes in many forms, and exactly what will be accepted home equity loan may depend on the home equity loan provider you're working with. Generally speaking, collateral for home equity loan falls into two broad categories: personal assets and business assets.

Examples of personal assets that can be used to secure a loan:

• Real estate
• Home equity
• Cars, mobile homes, trucks, boats and other vehicles
• Paycheques

• Cash and savings accounts
• Investments
• Valuables (jewellry, collectibles)

Examples of home equity and business assets that can be used to make home equity to secure a loan:

• Real estate
• Equity in business-owned property
• Business vehicles
• Accounts receivable
• Equipment and machinery

• Inventory
• Investments
• Business savings accounts
• Insurance policies
• Natural reserves

Types of Secured Loan

Mortgages and auto loans are the most common types of secured loans. Title loans are also common - these use an already paid-off asset as collateral against another purchase. A specific type of title loan is a car title loan, which uses a fully owned car to secure a new car title loan against (not necessarily auto loan-related).

Factors to Consider When Comparing Loans

Interest Rate

Interest-Only

Loan Term

Collateral Requirements

• When property is used for collateral, loan amounts are typically 80% of the home's value (assuming no other loans secured against the property)

• When a vehicle is used for collateral, loan amounts range from 25% to 50% of the value of the car

Fees

Frequently Asked Questions About Secured Loans

What is a secured loan?

What are the most common types of secured loan?

What can I use a secured loan for?

How can I qualify for a secured loan?

Can I get a secured loan with bad credit?

What are the advantages of a secured loan?

What are the risks of a secured loan?

What can I use to back a secured loan?