A secured loan is any loan where the borrower pledges an asset — called collateral — to back the debt. If the borrower fails to repay, the lender has the legal right to seize and sell the collateral to recover their money. This arrangement benefits borrowers too: because the lender has a safety net, they typically offer lower interest rates and are willing to approve borrowers they might otherwise decline.
The most common secured loan in Canada. The property being purchased (or already owned) is the collateral. Rates are the lowest of any major loan category because real estate is stable, valuable, and easily liquidated. A first mortgage has first claim against the property; a second mortgage (less common) has a subordinate claim.
A lump-sum loan secured against the equity in your home — the difference between your home's value and your outstanding mortgage balance. Available to homeowners who have built up equity. Rates are close to mortgage rates, far below unsecured personal loans. The lender registers a charge against the property. Typically used for renovations, debt consolidation, or large purchases.
Revolving credit secured by home equity. Rates at prime plus a small spread (roughly 5.5–7% in 2025). You draw and repay as needed up to the credit limit. The house is at risk if you default. One of the cheapest borrowing instruments available to homeowners.
The vehicle is collateral. Standard for car purchases. If you stop making payments, the lender repossesses the vehicle. Lower rates than unsecured personal loans because of the security, though used-vehicle loans carry higher rates than new vehicles due to less predictable resale values.
An unsecured-style personal loan that you secure with a specific asset — often a savings account, GIC (Guaranteed Investment Certificate), or vehicle. Many alternative lenders (Fairstone, easyfinancial) offer secured personal loans as an option for borrowers with poor credit who own something of value. Rates are meaningfully lower than unsecured options from the same lender.
You pledge a savings account or GIC as collateral. The lender holds the funds during the loan term. Because the loan is backed by cash, rates can be very low and approval is nearly guaranteed regardless of credit score. Also used as a credit-building tool — your money stays invested while you build a repayment track record.
The rate difference between secured and unsecured loans is significant:
The gap is most pronounced at the subprime end. A secured loan at an alternative lender might be 10–15% cheaper than unsecured from the same lender for a poor-credit borrower.
Lenders typically advance 50–80% of the collateral's appraised value as the loan amount — this is called the loan-to-value ratio. They don't lend 100% of the asset's value because they need a buffer in case the asset depreciates before they can sell it.
When a lender takes a security interest in an asset, they register a lien (a legal claim) against it through the appropriate provincial or national registry:
The lien means you cannot sell the asset without the lender's knowledge, and any buyer takes the asset subject to the lien unless it's cleared. When you repay the loan in full, the lender discharges the lien and your title is clean again.
The exact process depends on the asset and province, but generally:
Defaulting on a secured loan is far more damaging than missing a payment — it results in credit damage, potential asset loss, legal proceedings, and possibly a remaining deficiency debt.
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