Secured personal loans vs unsecured personal loans

Sometimes you just need some extra cash.

Whether you need money to renovate your home, consolidate your debt, or deal with some other issue, there may come a time when you’re looking for a personal loan.

A personal loan is a type of loan that can be used for personal purposes. So unlike a student loan, which is used for school, or an auto loan, which helps pay for a car, a personal loan can be used for whatever you want.

To that end, there are two types of personal loans in Canada: a secured personal loan and an unsecured personal loan.  

Best lenders for secured or unsecured personal loans

In this guide, we’ll offer up information on both types of personal loans. This way you can learn what you need to know and figure out which type of personal loan is best for you.

What are the differences between a secured and unsecured personal loan?

If you’re in the market for a personal loan, you might wonder what’s the difference between a secured and unsecured personal loan.

secured personal loan is ‘secured’ because it is backed by collateral. What’s collateral? It’s any type of asset that can be used to pay for the loan if you’re unable to pay it back.

Perhaps this is your property, a line of credit, or some other type of asset. In other words, if anything is to happen and you can’t pay back your secured personal loan, the lender can come after the collateral.

Because lenders need to verify your collateral, you typically won’t be approved immediately. Yet, a secured personal loan often has a lower interest rate with a higher funding amount than a loan not backed by assets.

Because you can often access more financing, you may be able to consolidate your credit card debt or pursue a big home repair project.

Unsecured personal loans, on the other hand, are just that: ‘unsecured.’ This means they are not backed by collateral. As such, you don’t have to put up any assets to back the loan and you may have a faster approval process.

Sounds good, right? Yes and no. While you’ll get funded faster, you may end up with a high interest rate because a lender has nothing to fall back upon should you default on your loan payment.  

What should I know about unsecured vs. secured personal loans?

When applying for a personal loan, it’s important to find out whether it’s secured or unsecured. Remember: if it’s secured, you will need to back the loan with your assets as collateral.

For each lender, you’ll want to know what type of collateral they accept, as well as the terms and conditions for the loan. If it’s unsecured, you’ll be approved faster but you’ll likely pay a higher interest rate.

Regardless of whether you get a secured or unsecured loan, make sure you find out the Annual Percentage Rate (APR), or interest. Interest is a percentage of the loan that you pay as part of the agreement for taking out the loan. Essentially, it’s a convenience fee for borrowing money.  Depending on the APR and the terms, it may significantly add to the cost of the loan. But here’s the good news: the APR on a personal loan — whether secured or unsecured — is typically less than a credit card.

This is why many people use personal loans to consolidate debt.

There aren’t many restrictions when it comes to what a personal loan can be used for. However, unsecured personal loans do have some restrictions that are pretty straightforward. For example, the money can’t be used for illegal activities or gambling.

We think a picture is worth a thousand words. Below you can see the benefits of using a personal loan in Canada to pay off your credit card debt. Not only is credit debt expensive, but in this example, it would also take you 66 years to eliminate your credit debt by making minimum payments (for a standard Canadian credit card). Stop those minimum payments, and put a clear end date in site to pay off your debt.

We empower you to check your potential loan rate in just minutes and help you get the rate you deserve. We don’t see you as just a number, but as a person, and we provide loan options which fit your financial history and future potential. An ongoing credit card balance can be daunting, but consolidating credit card debt doesn’t only save you from interest charges, it allows you to set a clear end date for when you’ll eliminate that debt for good. Add these debt consolidation payments to your monthly budget and in no time at all, your debt will be gone.


Do I need to build credit to get approved for these types of loans?

  • If you’re looking to get approved for a personal loan in Canada then it’s important to understand how your credit comes into play. For many types of loans, you need at least good credit to show a lender that you are creditworthy, responsible and can pay your debt back on time.
  • For consumers with less than ideal credit — and assets available to use as collateral — a secured loan may be a better fit. This is because unsecured personal loans require a higher credit score than secured personal loans. In other words, unsecured loans are more of a risk for lenders as there is no collateral involved.
  • It’s always a good idea to get your credit in the best shape possible before applying for a new loan. This means making your payments on time, keeping your balances manageable, not maxing out your credit cards, and not applying for too many credit accounts.

If you can demonstrate a positive repayment history and an ability to manage your debt, you will boost your credit.

What are borrowing limits?

  • Whether you’re looking for an unsecured personal loan or secured personal loan, there may be borrowing limits to consider. For example, there may be a minimum or maximum borrowing amount to qualify for a loan.
  • So, before applying for a personal loan, understand exactly what you want to use the funds for and how much you need. If you can’t get approved for what you need or the minimum is too high, there’s no sense in taking out more debt.

Bottom line

If you need some cash – whether it’s to consolidate debt or fund your next home renovation – a personal loan may be a good fit for you. But, before you apply, consider the difference between an unsecured personal loan and a secured personal loan.

Figure out how many months or years it will take you to pay that loan back and make sure you understand how the APR will affect your overall debt repayment. Lastly, find a lender like LendingArch to help you navigate the pros and cons of a personal loan.

Once approved, be sure you pay back your personal loan on time and stay in good standing. This way you can use your personal loan to your advantage while keeping your credit in good shape.  

Looking to get a Canadian personal loan? Check out LendingArch.