Secured Loans vs Unsecured Loans

When looking for financing in Canada, borrowers will often come across loan options that are either secured or unsecured. Secured and unsecured loans have unique functions and advantages that can apply to borrowers in various situations. Given that most loan options in Canada are either secured or unsecured forms of financing, understanding the differences can help you easily navigate your application process.  

As mentioned, secured and unsecured loans benefit borrowers differently based on their financial situation and the purpose of their loans. Knowing the key differences between secured and unsecured loans can make it easier to decide which loan option aligns best with your goals.   

A secured loan is a type of financing secured by collateral, like a car or a home. Lenders reserve the right to use this collateral to recoup the outstanding balance of funds advanced if a borrower defaults on their loan or cannot continue making payments. Traditional home equity loans are great examples of secured loans because most home equity loan lenders use the borrower’s home as collateral.   

Unlike a secured loan, unsecured loans don’t require the borrower to submit any collateral. This means borrowers won’t place their assets at risk when applying. Without collateral, lenders will place more weight on the individual’s creditworthiness to mitigate risk as much as possible.  

Borrowers may also pay higher interest rates as a premium to compensate for the lack of collateral. Payday loans and credit cards are common unsecured loans that don’t require the borrower to have any collateral. 

Other than the fact that secured loans use collateral and unsecured loans don’t, some key differences separate these two forms of financing. 

Secured loans have specific uses and benefit borrowers based on their financial situations. Individuals typically look for a secured loan when they 

• Have an asset they can use as collateral  
• Don’t have an exceptionally high credit score  
• Want lower interest rates  
• Want to make a significant purchase like buying a car or a home  
• Are self-employed with irregular income and can’t qualify for unsecured loans  

With unsecured loans like payday loans and credit cards, borrowers aren’t looking for large funds to finance major projects. Instead, they are looking for loans that can be used for more personal expenses. Individuals look for an unsecured loan when they:  

• Do not have an asset that they can present as collateral  
• Are looking to get approved quickly for small amount 
• Do not need access to a large amount of funds  

Lenders usually have a collection department dealing with borrowers who defaulted on loan payments. A loan defaults if it’s been 30 days or more since the borrower defaulted on their payments. Generally, the time for a loan to default depends on the kind of loan, the lender, and the terms and conditions of the loan itself.  

A secured loan can affect your credit score positively or negatively depending on whether you make timely payments. If you have budgeted appropriately and consistently make monthly payments on time, you will likely see a positive impact on your credit score.  

Conversely, your credit score may take a hit if you cannot pay on time. The best way to make the most of your secured loan is by making timely installments to improve your financial standing and save you the stress of worrying about late payments.  

Alpine Credits has been helping homeowners access secured home equity loans across Canada for over 50 years. A home equity loan from Alpine Credits is flexible in its use, meaning that the funds can be used to fulfill a wide range of financial needs, including home renovations, business investment, and loan consolidation.   

Alpine Credits puts little emphasis on your credit score or income when you apply. Instead, they prioritize the equity you have available in your home. With quick approval times and a reliable lending process, this is a great solution for homeowners seeking secured home equity loans.  

To learn more, fill out the application form on our website and a Financial Solutions Specialist will reach out to guide you through your application.