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Update date 11.04.2025
A secured personal loan in Canada allows you to use your car or home as collateral. This helps you get larger loan amounts with lower interest rates. Many people use these loans to combine debt, make large purchases, or pay for expensive emergencies. They choose these loans when unsecured loans are not an option. The lender can take your collateral if you don’t pay back the loan. Because of this, lenders are often more willing to give you higher limits and longer repayment terms. However, getting approved is not guaranteed. Lenders often look for steady income, a good debt-to-income ratio, and clear ownership of the collateral. If your credit score is low, your application might be denied. If the collateral isn't valuable enough, that can also lead to a denial. Despite the risk of asset loss in case of default, secured personal loans are often more accessible to borrowers with average credit who need significant funding and are comfortable backing the loan with property they own.
Requirements and Conditions
Requirements
Borrowers must give valuable items, like a car, home, or other possessions, as collateral for the secured loan.
You must be at least 18 or 19 years old, depending on your province or territory.
Valid government-issued ID, such as a driver's license or passport, to verify their identity and residency.
You need documents to show the borrower's income and job status. This can include pay stubs, bank statements, tax returns, or other important financial records.
Most lenders check a borrower's credit score to see if they are creditworthy. Secured loans may be easier for those with lower credit scores. However, a good credit history can still affect interest rates and loan terms.
Canadian account details, for the deposit of loan funds and to set up automatic payments.
Depending on the lender, borrowers may be required to provide their Social Insurance Number (SIN) as part of the application process.
Some lenders may inquire about the specific purpose of the loan, particularly if it's for debt consolidation or a major purchase.
For certain assets like homes, lenders may conduct an appraisal to assess the value of the collateral.
Conditions
Lenders will set the interest rate for the secured loan. Secured loans usually have lower interest rates than unsecured loans. This is because they are less risky for the lender.
The approved loan amount depends on the value of the collateral. Collateral with a higher value often lets borrowers get larger loans.
Lenders will outline the duration of the loan repayment, indicating the number of months or years within which the borrower is expected to repay the loan.
The lender will specify the frequency of loan payments, whether monthly payment schedule, bi-monthly, or otherwise. Borrowers need to adhere to the agreed-upon payment schedule.
Lenders may impose certain fees, such as application fees, appraisal fees, or late payment charges. Borrowers should carefully review and understand all associated fees.
Borrowers are required to sign a loan agreement that outlines all terms and conditions of the loan, including the consequences of default and the process for collateral seizure.
The lender will specify the conditions under which they will release the collateral, usually upon full repayment of the loan.
Secured personal loans are a great option for people looking to get a loan by putting up collateral like their home, car, or other valuable assets. They come with some perks, like lower interest rates and longer repayment terms since they’re less risky for lenders. However, it’s important to think about the downsides too. If you can’t make your payments, you could lose that collateral. So, make sure you’re confident in your ability to pay it back. Plus, keep in mind that the application process for secured loans can be a bit more complicated than for unsecured ones.
FAQ
Do secured loans affect credit score?
Yes, secured loans can have an impact on your credit score. When you apply for a secured loan, a hard inquiry is typically made on your credit report, which may result in a temporary dip in your credit score. However, once the loan is approved and you start making timely payments, it can have a positive effect on your credit. Responsible management of a secured loan, including making personal loan payments on time, demonstrates to credit bureaus that you can handle credit responsibly. On the flip side, defaulting on payments or facing issues with the loan can negatively impact your credit score, and in severe cases, may lead to the repossession of the collateral.
What is the eligibility for a personal loan in Canada?
To get a personal loan in Canada, you need to meet certain requirements. These include your credit score, income, job stability, and debt-to-income ratio. Lenders usually ask for proof of identity and income documents, like pay stubs or tax returns. They may also check your credit. A good credit score, steady income, and a low debt-to-income ratio can help you borrow money. However, different lenders have different rules. Some alternative lenders might be more flexible with their requirements.
What credit score do you need for a secured personal loan?
The credit score needed for a secured personal loan can differ by lender. Generally, personal loans in Canada are easier to get for people with lower credit scores than unsecured loans. Some lenders may accept borrowers with scores below 600. However, having a higher credit score can lead to better terms, like lower interest rates. Secured loans depend a lot on the value of the collateral. This makes lenders more flexible with those who have less-than-perfect credit. It is important to check with each lender, as their credit score requirements can vary.
