The Best Secured Loans in Canada (2024)
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Are you thinking about improving your home or starting a new business and need a loan to get going? You will find better rates and more favourable terms if you have assets you can offer up as collateral.
Collateral reduces the risk for lenders and means they are more willing to negotiate and offer the best possible terms. Secured loans are the best deal available if you can meet the criteria!
What are secured loans?
A secured loan can either be a personal loan or a business loan. When we talk about secured loans meaning sums of money borrowed from a lender that uses a possession of the borrower's as security. A secured loan is less of a risk for the lender and therefore they will probably offer better interest rates and repayment terms than an unsecured loan.
For example, if you need to borrow money you can use your car or home or any other possession as security. This means that if you fail to make repayments then the chosen asset, or 'security', can be taken away by the lender.
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How to get a secured loan?
When choosing a loan you should shop around and find the lender who best suits you. Take a look at our comparison tool for personal loans. Secured short-term loans are usually secured by offering possession as collateral. Let's take a look at the most common possessions used to secure loans:
- Art
- Car
- House
- Home equity
- Investments
- Jewellery
- Savings accounts
Loans secured with collateral will usually enjoy a lower interest rate and are more likely to be approved by the lender and have longer repayment periods. Lenders will be interested to see what you can offer as collateral and you will have more room for negotiation than an unsecured loan.
Watch out!
Always read the terms and conditions thoroughly and twice! Make sure you fully understand the repayment schedule and penalties!
What is the difference between unsecured and secured loans?
The difference between secured and unsecured loans is that with the former you offer an asset as collateral to the lender. This will result in you having more favourable repayment terms and lower interest rates. Let's take some examples:
Keep in mind
Mark, 39, from Ontario, is taking out a personal loan online to build a garden extension onto his two-bedroom property. He takes out a secured loan using his house as collateral. This means that if he fails to make repayments then his house could be repossessed by the lender. He borrows $25,000 at a rate of 10% and has a ten-year repayment schedule meaning he will make payments of $330 a month. In total, he will repay $39 645.
And, by contrast, let's look at an unsecured loan example:
Keep in mind
Samuel, 24, is still renting but needs a loan to invest in his business. As he owns neither his home nor a car he has to take out an unsecured loan. He borrows the same amount as Mark, $25,000, but at a rate of 22% as he has no collateral. Over the same ten-year repayment period he will pay $517 each month. In total, he will repay $62,009.
As we can see here a secured loan is a much better deal for a borrower. Not only will Samuel have to pay $187 a month more than Mark for borrowing the same amount but over time he will have to repay nearly double the amount.
| Individual | Type of loan | Amount borrowed | Monthly payment | Total repayment |
|---|---|---|---|---|
| Mark | secured | $25,000 | $330 | $39,645 |
| Samuel | unsecured | $25,000 | $517 | $62,009 |
The advantages of secured loans vs unsecured loans are therefore clear. A significant saving in monthly repayments and a huge saving in the total amount to be ultimately repaid.
Who can take out secured personal loans?
To take out a secured loan you will need to have possessions with substantial value to use as collateral. lenders will also be interested in your employment history to check that your ability to make repayments is credible. A good credit score will help you negotiate more favourable terms and interest rates. You will also need to be able to prove that your asset is legally yours to offer as collateral.
Finally, as with every loan, you will need to be legally an adult in your province and be able to provide a government id and proof of address. Lenders will typically ask for three months of bank statements to assess your income.
What types of secured loans are there?
When you reach out to a provider they will decide which of your assets meet their criteria for approving a loan. Common types of secured loans include:
| Type of secured loan | Info |
|---|---|
| Auto loans | You take out a loan to buy a car, using the car itself as your collateral. |
| Business loans | Used to pay wages, buy equipment or for investment. Equipment or property owned by your business can be used as assets. |
| Home equity | A home equity line of credit (HELOC) uses your house to secure credit. |
| Mortgage | When buying a house you can get a loan using the house itself as collateral. |
How much can you take out as a secured loan?
With assets put up as security, you can borrow much more than you could with an unsecured loan. With Loan Connect you can take out as much as $50,000 in a personal secured loan.
For a secured business loan the limit is much higher. With the Canada Small Business Financing Program (CSBFP) you can borrow as much as $1 million. If you have enough assets you should be able to negotiate even higher loans. Speak to a business advisor today to see how much you personally could borrow.
Start working with a financial advisor today
Can you get secured loans with bad credit?
If you have bad credit you will find it easier to get a loan if you have assets to offer as collateral. Due to the increased risk taken on by the lender, you will likely have to pay higher interest rates and have a less favourable repayment plan.
The good news is that if you make all your repayments on time then your credit score will improve. If you would like to know more take a look at our guide to improving your credit score now.
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