Secured Loans

Secured Loans in Canada

Canada’s booming startup sector means more and more entrepreneurs are looking to capitalize on favourable market conditions by establishing their own business. This is anything but simple though, and when debating how to secure the necessary financing for a new business, there are quite a few options. Some applicants will opt for a traditional loan from a financial provider. For others, a secured loan is more appealing.

Here at Smarter Loans, we understand that the concept of a personally secured loan might be worrisome. But rest assured that our team wants to help you find a secured loan provider that will address all of your needs while remaining within your comfort zone. We have updated our loan directory to this end; you can browse loan providers in the list below to understand the major offerings from the most reputable companies in Canada. Examine their various interest rates, customer reviews and products to understand your options. Simply hit “Apply Now” to get your application started; you could be awarded your new loan in less than a week!

And if you’re unsure which provider is right for you, pre-apply with Smarter Loans. Our team will analyze your application details and help match you with the best provider for your circumstances.

We can help connect you with the top secured loan providers in Canada.

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Top Secured Loans Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$500 - $30,000
19.99% - 39.99%
6 - 120 Months
$350 - $25,000
Varies
12 - 60 months

What is a Secured Loan?


Simply put, a secured loan is a loan that is backed by collateral. For example, a mortgage is a secured loan where the collateral is the house being mortgaged. An auto loan may be secured 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 loan against a personal asset in order to finance a new business.

Why are Secured Loans Popular?


Secured loans are considered less risky to lenders because in the event of default, they have an asset to help cover the cost of the debt, 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 loan, you risk losing the asset you used as collateral.

What Can I Use a Secured Loan For?


Secured loans are extremely useful in the event that you need to raise funds for a specific purpose and have a valuable asset that you can leverage. These loans can be used for a wide range of purposes, including:

  • Financing a new business
  • Financing a home purchase or home renovations
  • Purchasing a car or other vehicle
  • Alleviating cash flow problems
  • Securing a credit card (to gain access to a credit card when you have no or bad credit history)

Secured loans can also be a great way to build credit if you are new to Canada, or to repair poor credit history. Accessing a secured loan will be easier in both instances than accessing an unsecured loan; by making all of your payments promptly you will build positive credit. However, this plan can backfire if you overextend yourself or are not diligent about making your payments on time.

What Can I Use as Collateral?


Collateral comes in many forms, and exactly what will be accepted may depend on the loan provider you’re working with. Generally speaking, collateral 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
  • Cash and savings accounts
  • Investments 
  • Valuables (jewellry, collectibles)
  • Paycheques

Examples of business assets that can be used 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 loan (not necessarily auto-related). Home equity loans rely on a similar principle: using the equity you have built up in your home to secure a new loan. This is distinct from a mortgage as you are not using the loan to purchase the house you’re securing the loan against. Any or all of these types of loan can be used to finance either personal or business needs.

Factors to Consider When Comparing Loans


Interest Rate

This is effectively the amount 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 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 rate you qualify for will depend on your credit history, the asset being used as collateral, the loan amount and term.

Interest-Only

If you opt for an interest-only loan, then your repayments consist only of interest, but this means that you will need to repay the full amount borrowed at the end of the loan term. This can mean much lower monthly costs for the loan, but the risk to the borrower is higher.

Loan Term

Loan term is the lifespan of the loan; secured loans tend to be of longer duration than unsecured loans, and while this may mean lower monthly payments, it will also mean more interest paid overall. Consider what you can afford to pay monthly; generally speaking, the higher the interest rate, the shorter you want the loan term to be.

Collateral Requirements

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 asset you hope to use as collateral. Lenders will not lend you as much as your asset is worth at the time of application. 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:

  • When property is used as collateral, loan amounts are typically 80% of the home’s value (assuming no other loans secured against the property)
  • When a vehicle is used as collateral, loan amounts range from 25% to 50% of the value of the car

Fees

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 application fees, origination fees, appraisal fees, late payment fees, and early repayment fees.

Data source: CMHC 2020

Frequently Asked Questions About Secured Loans


What is a secured loan?

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 in lieu of payment. The asset used to secure the loan is known as collateral.

What are the most common types of secured loan?

Mortgages and auto loans are the two most common forms of secured loan, with the former using the home being purchased as collateral, and the latter using the car being purchased.

What can I use a secured loan for?

Funds gained through secured loans can be used for almost anything, from financing a new business, to alleviating cash flow problems, to financing a purchase. Both business and personal uses are possible.

How can I qualify for a secured loan?

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 an unsecured loan. The amount you can borrow and the loan terms will depend on the lender and your specific financial circumstances.

Can I get a secured loan with bad credit?

Yes, people with bad credit can get secured loans. Depending on the type of secured loan, interest rates may be higher than you expect. For example, title loans are generally geared towards borrowers with poor credit, and so charge higher interest rates than home equity loans.

What are the advantages of a secured loan?

Secured loans are easier to qualify for than unsecured loans, especially if you have no or bad credit; they are also sometimes cheaper in that, as they are considered less risky, you may qualify for lower interest rates and more preferable loan terms than with an unsecured loan.

What are the risks of a secured 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 used as collateral. For example, with a mortgage default, the lender can foreclose on your home. Also a factor when considering a secured loan is their longevity; they tend to be longer term than unsecured loans and so interest can end up costing you more.

What can I use to back a secured loan?

Assets of all kinds can be used to secure a loan; exact eligibility requirements may vary by lender, but commonly used assets include property, vehicles, home equity, savings deposits, investments, and in the event of a business loan, business assets such as inventory, property, accounts receivable, and equipment.

Written By Smarter Loans Staff


The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada’s highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the “GPS of Fintech Lending” by the Toronto Star in 2019.

Types of Secured Loans offered:

  • Title Loans
  • Car Title Loans
  • Vehicle Loans
  • Home Equity Loans
  • Mobile Home Loans

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