Secured vs Unsecured Personal Loans in Canada: Which to Choose

If you’re planning to borrow money in Canada, you’ll usually choose between a secured loan and an unsecured loan. Both types share some basics: lenders provide funds for a set period (the loan term), they typically run a credit check and both charge interest.

Comparing secured and unsecured personal loans means weighing their advantages, drawbacks and risks against your financial needs, timeline and goals. Knowing the differences helps you choose the most suitable option before you borrow.

What is a secured loan?

A secured loan is backed by collateral — an asset you already own, such as your home, car or other property. That asset serves as security for the lender. If you fail to make required payments (default), the lender can seize the collateral to recover the outstanding balance.

Because collateral lowers the lender’s risk, secured loans often allow you to borrow larger amounts for longer terms and at lower interest rates than unsecured loans. Lenders feel more comfortable extending credit when they can claim an asset if the loan isn’t repaid.

Secured loans are commonly used for larger expenses: home renovations, major life events and consolidating high-interest debt, for example. They can also be an option for education costs if you don’t qualify for a dedicated student loan. An auto loan is a typical secured loan where the vehicle itself is collateral.

What is an unsecured loan?

An unsecured loan does not require collateral. Without an asset securing the debt, lenders face greater risk, so these loans usually offer smaller amounts and carry higher interest rates. Unsecured loans work well for shorter-term or urgent expenses, such as emergency repairs.

Payday loans are an extreme example of unsecured credit: no collateral and very high fees and interest. But a responsible unsecured personal loan can also help reduce borrowing costs—if you use it to pay off credit card balances that carry higher interest, you may save money overall by switching to a lower-rate personal loan.

The pros and cons of secured loans

Secured loans come with clear benefits and trade-offs.

Pros

Key advantages of secured loans include:

• Higher approval odds since collateral reduces the lender’s risk.
• Lower interest rates, which can make monthly payments more affordable over the loan term.
• Potential access to larger loan amounts because the asset provides security.

Cons

Potential downsides include:

• The possibility of losing the pledged asset if you default.
• Extra costs such as appraisal or administrative fees that can reduce the net funds you receive or increase your total cost.
• Longer approval times in some cases, because the lender may need to verify and appraise the collateral.
• Default can harm your credit report and score, making future borrowing more difficult.

The pros and cons of unsecured loans

Unsecured loans also have benefits and risks to consider before signing anything.

Pros

• No collateral required, so you won’t lose a specific asset if you miss payments.
• Applications and approvals are often quick—sometimes within minutes or a day with online lenders.
• Funds are not tied to a specific purchase (unlike mortgages or car loans), so you can use the cash for virtually any purpose.

Cons

• It can be harder to qualify for an unsecured loan because the lender assumes more risk.
• Interest rates tend to be higher than for secured loans.
• You typically need a good to excellent credit score (often in the 650–850 range) to secure the best rates.
• Loan amounts are usually smaller than with secured loans.
• Failure to repay will damage your credit score and appear on your credit report.

Before you decide on a secured vs. unsecured loan

Regardless of the loan type, read the contract carefully before you sign. Know the loan term, the annual percentage rate (APR), and whether the rate is fixed or variable. A fixed rate keeps your payments the same over the life of the loan. A variable rate can change with movements in the Bank of Canada’s overnight rate, which may raise your payments or increase the share of each payment that goes to interest rather than to principal.

Assess whether you can afford the payments. Consider how much you need to borrow, how much you can repay each month and whether you could still afford payments if interest rates rise.

If you’re considering a secured loan, be certain you’re comfortable putting the asset at risk. Default can mean losing your house, car or other property, and your credit record will suffer, which can make future borrowing harder and more expensive.

How interest rates work for secured and unsecured loans

Interest is the cost of borrowing. When you take out a loan, you repay the principal plus interest over time.

Interest rates are influenced by the Bank of Canada’s policy (overnight) rate, which in turn affects banks’ prime rates. (The policy interest rate is currently 2.75%.) Changes to the overnight rate typically ripple through to rates on credit cards, lines of credit, auto loans and other loan products. Lenders may offer either fixed or variable rates.

Loan rates also depend on borrower-specific factors. Secured loans often carry lower rates because collateral reduces lender risk. Your credit score and debt-to-credit ratio matter, too: a higher credit score and a lower credit utilization ratio (generally below 30%) improve your chances of getting a favorable rate.

Other types of loans

Both secured and unsecured categories include several loan products. A few common examples follow.

What are HELOCs?

A home equity line of credit (HELOC) is a secured loan that uses your home as collateral. Many HELOCs require only interest payments each month, giving flexible payment options while the balance remains. However, taking longer to repay increases total interest costs. Current HELOC rates are listed at 6.45% in this article.

What is a payday loan?

Payday loans are short-term unsecured loans with very high interest rates and fees. Without collateral, unpaid balances can quickly balloon with interest. In Canada, payday loans can carry an annual interest rate as high as 442%.

Which type of loan should you get?

Your situation	Secured loan	Unsecured loan
You have an asset you can put up for collateral	X
The loan is tied to purchasing an asset (e.g., a car loan)	X
You need a large sum of money	X
You can wait a few days for the loan approval	X
You can afford the administration and appraisal fees	X
You need to take your time to pay it off and have flexible payments	X
You want “revolving credit”: as you pay off the loan, you still have access to the credit product (credit card, HELOC)	X
It’s an emergency and you need money immediately		X
You can pay the loan back within the term and make all regular payments		X
You need to borrow $1,500 or less (that’s the maximum for payday loans)		X
You don’t need revolving credit, and this loan is a one-and-done situation		X
You may not have the best credit score and can’t get a loan from a bank		X

Getting a loan in Canada

Before you apply for a personal loan, make sure you understand the agreement, borrow only what you need and plan to repay within the term. If you want guidance on your broader financial picture, consider consulting a financial advisor. Professional advice can help you meet your financial goals and may improve your credit profile, which makes future borrowing easier.

Lender	Loan term	APR	Loan amount	Minimum credit score
Spring Financial*	6 months to 5 years	9.99% to 34.95%	$300 to $35,000	N/A
Scotiabank	1 to 5 years	6% to 10%	$5,000 to $75,000	Undisclosed
BMO	1 to 5 years	8.99% to 22.99%	$2,000 to $35,000	Undisclosed
TD Bank	1 to 7 years	8.99% to 23.99%	$5,000 to $50,000	650
CIBC	1 to 5 years	9% to 10%	$3,000 to $200,00	Undisclosed
RBC	1 to 5 years	9% to 13%	No minimum or maximum listed	Undisclosed
Mogo	6 months to 5 years	9.90% to 35.00%	$500 to $35,000	N/A
Fig Financial*	2 years to 5 years	8.99% to 29.49%	$2,000 to $30,000	680
MDG Financial	3 years	29.78% to 35.00%	$1,600 maximum	560
Easyfinancial	9 months to 10 years	9.90% to 35.00%	$500 to $20,000	N/A
Nyble*	Up to 31 days	0%	$50 to $250	N/A

Read more about loans:

• How to buy a car in Canada and get the best loan rate
• Is your car worth less than what you’re paying for it?
• Find the best mortgage rates in Canada
• Borrowing from your HELOC to invest in equities