secured personal loan

A Secured Personal Loan, Explained


Personal loans can signal a big change in your life. You may need the money for a project or a business you are starting. Or, you could just need the money to get out of dire times. 

After the height of the pandemic, many Canadians felt this. About 26% of them wanted to take out a personal loan in 2021. 

If you find yourself in this situation, know that you have options. One of those options is to take out a secured personal loan. 

What is a secured loan? What are the benefits of using secured loans? 

This is your guide. 

What Is a Secured Personal Loan? 

Before we dive deeper into secured loans, we need to make sure you understand how these loans work. Essentially, a secured loan is a personal loan that is backed up with collateral from the borrower. 

Here, the borrower is telling the lender that if they cannot pay back the loan in full, then the lender has the right to seize the asset they are putting up as collateral. 

Let’s say that the borrower is looking to get a $500,000 personal loan to start a business. However, they do not have nearly enough money to raise it themselves. 

This borrower may have trouble getting an unsecured loan for that much money. So, they may put up the one thing they have that is worth that much money. 

For most people, that would be their home. In Canada, this is a very valuable asset, considering that the average home in this country can sell for over $700,000

There are a few benefits to using this type of personal loan vs. an unsecured loan. 

Get Bigger Loans 

One of the main benefits of secured loans is that you can qualify for bigger loans than you can with unsecured loans. In the example above, very few people would likely qualify for a personal loan that is worth $500,000. 

Even with a great credit score, some people may not have the income or the savings to justify a lender giving them that much money. There are some situations where lenders simply need more security. 

Regardless of what you need the money for, putting up a valuable item such as a house or a car as collateral can greatly increase your odds of getting a bigger loan because of the security you are offering a lender. 

Lower Interest Rates 

Another big benefit to secured loans is that you are likely to pay a lower interest rate on the loan compared to an unsecured loan. Again, the reason for this is the security that the lender has. 

In this situation, the lender knows that they have a valuable asset sitting there for the taking if you fail to pay their money back. It is like they have their insurance already for this investment. 

With unsecured loans, they are solely relying on the return on investment they get from interest payments. However, if you fail to keep up with these payments, lenders could lose a good portion of the loan money. 

So, because lenders already have security with secured loans, they may feel less urge to charge a ridiculous interest rate. 

Good for Bad Credit 

Are you someone that has poor credit history? Are you someone that has no credit history? 

If you said yes to either of those questions, then a secured loan is the perfect personal loan for you. The reason for this is that the eligibility requirements for these loans are a lot looser compared to unsecured personal loans. 

Think about it. With unsecured loans, lenders are checking your credit history to determine the odds of you paying your loan back. Since they have no collateral here, they are relying more on your financial reputation. 

When it comes to secured loans, the collateral is already going to be there. Otherwise, they will not get the loan at all.

That means that a lender is going to place less importance on credit history. To them, it likely will not matter if you have poor credit because instead of trying to sue you, they will just keep the collateral that you offer them. 

Choose Your Collateral Wisely 

Depending on how much money you need, you should be very careful with what collateral you are offering for a secured loan. The reason is that if something unforeseen comes up while you are paying this loan off, there could be a real chance that you have your collateral seized. 

For some people, this could be an irreversible thing that happens in their life. 

What if someone puts up their house as collateral for a big loan? How about if someone puts up their car when they live in the middle of nowhere? 

You have to think about the worst case scenario. Then, ask yourself if you can live without whatever asset you put up as collateral. If you discover that it would permanently damage your life to lose it, think twice about using it as collateral. 

Get a Secured Personal Loan 

These are the main things that you need to know about getting a secured personal loan. In order to get one, the borrower has to offer the lender collateral in case they cannot pay the money back. 

In return, they get friendlier loan terms such as a looser credit check, lower interest rates, a chance at a bigger loan, and more. However, you need to be careful with what collateral you offer for this. 

Do you need a personal loan? Apply here to see if you qualify. 

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