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Secured loans refer to financing where an asset you own is used as collateral, such as your house. Secured loans often result in lower interest and higher borrow amounts you can qualify for. If you are a Canadian homeowner looking for extra funds, a secured loan could be a great option.
At Smarter Loans we’ve teamed up with Canada’s top secured loan providers who can get you approved quickly, even if your credit is less than perfect. In the list below you will find multiple options for secured loans you can explore. You can also apply directly with Smarter Loans to get pre-qualified offers from our network of lenders.
We can help connect you with the top secured loan providers 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.
Unsecured personal loans are a type of credit where borrowers do not have to provide any collateral to secure the loan. Unlike secured personal loans however, where assets such as property or vehicles are used as security, these loans are given based on the borrower’s creditworthiness. An unsecured personal loan or unsecured loan example include credit cards, personal loans, and student loans.
The lender takes on more risk, as there is no asset to recover in case of default. Consequently, an unsecured personal loan or unsecured loan example will often come with higher interest rates compared to secured loans. They may also have stricter eligibility criteria, requiring borrowers to have good credit scores and a stable income. The advantage of an unsecured loan is that borrowers do not risk losing any assets, making them a less risky borrowing option for individuals.
An unsecured loan can be a viable option depending on your financial circumstances and needs. These loans are often easier and quicker to obtain as they require no collateral, making them a suitable choice for individuals without substantial assets.
Additionally, an unsecured loan offer a safer route for borrowers since there’s no risk of losing personal property in case of default. However, they come with higher interest rates due to the increased risk for the lender, which can lead to higher overall repayment costs.
Evaluating your credit score is crucial before applying for an unsecured loan or personal loan, as a good credit rating can help in securing a lower interest rate. It’s advisable to weigh the pros and cons, your credit score, and possibly consult with a financial advisor to determine whether an unsecured or personal loan really aligns with your financial goals and capabilities.
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.
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.
The interest rate on a secured loan is generally lower, making the monthly payment and the total interest paid over the loan term more manageable. Secured loans can also assist in enhancing your credit score if managed well, as credit bureaus monitor loan payments. However, it’s crucial to keep in mind the risk of losing your valuable asset in case of missing loan payments too.
It’s advisable to compare options, check the loan agreement for any origination fees or late payment fees, and consult with a financial institution, credit unions or online lenders to ensure you can get a secured loan or secured loans that align with your financial capabilities and goals. These types of secured loans can be used for a wide range of purposes, including:
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:
Examples of home equity and business assets that can be used to make home equity to secure a 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).
Home equity loans rely on a similar principle: using the equity you have built up in your home to secure a new home equity loan against. This is distinct from a mortgage as you are not using the loan to purchase the house you’re securing the home equity loan against. Any or all of these types of loan can be used to finance either personal or business needs.
This is effectively the amount and interest rate you will be paying for the loan; your payments are calculated based on the repayment schedule (the amount borrowed divided by the term of the loan) plus interest charges. Some types of secured loans have favourable interest rates, but others (such as title loans) are geared towards bad credit borrowers who are unable to access other loan types, and so come with higher-than-average interest rates. The loan interest rate that you qualify for will depend on your own credit score and history, the asset being used for the loan early collateral, the loan amount and term.
If you opt for an interest-only loan, then your repayments consist only of interest, but this means that you will need to borrow money to repay the full amount borrow money borrowed at the end of the loan term. This can mean much lower monthly costs for the loan, less interest paid but the risk to the bank account and borrower is higher.
Loan term is the lifespan of the loan; secured loans tend to have more interest and be of longer duration than an unsecured loan, and while this may mean lower monthly payments, it will also mean more in interest rate being paid overall. Consider your loan early and what the interest rate you can afford to pay monthly; generally speaking, the higher the interest rate, the shorter you want the loan term to be.
Not every lender will accept every form of collateral, so be sure to check what’s eligible before completing an application form for a specific provider. It’s also sensible, before approaching a loan application, to have a solid idea of the value of the specific asset that you hope to use as collateral. Lenders will not lend you as much as your asset is worth at the time of the loan application itself.
More volatile assets (such as an investment portfolio) are considered riskier, and so you will be able to borrow less against them as against something tangible, like property. As a general guideline, borrowing amounts are in the range of 50% to 90% of the collateral’s value. More specifically:
Most loans come with fees, and while sometimes these fees can be folded into the loan itself, it’s still important to know exactly what they are and how they’ll affect your monthly payments. Common fees include some loan application fees, some auto loan origination fees, some appraisal fees and car part appraisal fees, title loan amount fees, late payment fees, and early repayment fees.
A secured loan is a loan backed by an asset, so that in the event the borrower defaults on the loan, the lender can seize the asset instead of payment. The asset used to secure the loan is known as collateral.
Mortgages and auto loans are the two most common forms of secured personal loan, with the former using the home being purchased as collateral secured personal loan, and the latter using home equity as line of credit for the car being purchased.
Funds gained through secured loans can be used for a life insurance policy, home equity line, financing a business, alleviating cash flow, to financing a purchase. Both a business used life insurance loan and personal uses life insurance loan are possible.
Secured loans are often easier to qualify for than unsecured loans, as they are less risky to the lender. Generally speaking, borrowers need to have an asset that the lender will accept as collateral; there may also be credit requirements, although it is easier to get a secured loan with bad credit than it is to get a secured loan with bad credit borrowers or an unsecured loan line of credit. The amount borrowing money you can borrow and the loan terms will depend on the lender and your specific financial circumstances.
Yes, people with bad credit can get secured loans. Interest rates may be higher than you expect. For example, title loans are two more types of secured loans and credit cards, loans and credit cards generally geared towards borrowers with a poor credit history, and so charge higher interest rates than home equity loans.
Secured loans are easier to qualify for, especially if you have no or bad credit; they are also sometimes cheaper, as they are considered less risky, you may qualify for lower interest rates and more preferable loan terms than with an unsecured loan.
The major risk of a secured loan is if you miss payments or default on the loan altogether; this will result in the lender seizing the asset you have secured business loan used forcollateral. For example, with a mortgage default, the lender can foreclose on cash value of your home. Also a factor when considering a secured loan is interest rate and their longevity; they tend to be longer term than unsecured loans and so interest can end up costing the loan amounts and you more.
Assets of all kinds can be used as a type of secured loan; exact eligibility requirements may vary by lender, but commonly used assets include property, vehicles, home equity, a savings account, deposits, investments, home equity loans and in the event of a business loan, business assets such as inventory, property, accounts receivable, and equipment.
Amy Orr is a professional writer and editor with over 10 years of experience in the Canadian, U.S. and U.K. financial markets. She has written for numerous publications on topics as diverse as economic literacy, corporate finance, and technical analysis of numerical data. Prior to transitioning to full-time writing, she worked in the hedge fund sector. Her academic background is astrophysics, and she has a Masters in Finance from the University of Edinburgh Business School.
Jenna West is Smarter Loans' in-house financial writer and content director. She has been covering the Canadian FinTech and finance industry since 2017, including financial trends analysis, industry surveys, regulatory updates and changes in Canadian consumer behaviour when it comes to finance.
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