Secured Loans

Secured loans are one of the most common loans available on the market. They can be used to purchase a wide variety of big-ticket items, including a car or real estate. Secured loans are safer financial products too because of the assets used as security.

Guide to Secured Personal Loans


Secured personal loans are one of the most common loans available on the market. They can be used to purchase a wide variety of big-ticket items, including a car or real estate. Secured loans are safer financial products too because of the assets used as security.


In this guide, we will explore what a secured personal loan is, the corresponding pros and cons, what to consider when obtaining a secured personal loan and where to get one.


What is a Secured Personal Loan?


A secured personal loan is a form of financing that is secured by an asset, otherwise known as collateral. In other words, a lender extends money to a borrower, like any other form of financing. But, if the borrower ceases to make payments towards the loan, the lender can seize the secured asset and sell it to cover the cost of the owed funds. Secured personal loans can be as high as $35,000, sometimes even higher. Usually the term of the loan is between one and ten years.


What Can Be Used as Collateral?


Collateral is the asset that secures the loan you are taking out. Virtually any asset that has significant value can be used to secure a loan. Examples include:


  • New or used cars
  • House
  • Home equity
  • Savings or investment accounts
  • Jewelry
  • Artwork


What are Secured Personal Loans Used For?


Secured loans are most commonly used to renovate, repair or construct an extension to a home. More specifically, upgrading a bathroom or kitchen, landscaping or installing new flooring can all be financed using personal loans.


While home improvements is a common use of secured personal loans, they can be used for virtually anything. Keep in mind that lenders will want to know what you intend to use the money for before you’re approved. They can deny your loan application if they feel the purpose is unreasonable.


Advantages & Disadvantages


All financial products have corresponding pros and cons, including secured loans. Generally speaking, secured personal loans are one of the safer financial products out there leading to ample advantages. Let’s explore them in depth below.




  • Build Credit. Any form of financing that requires regular payments will contribute towards your credit building. However, you need to make payments on time and in full to successfully build credit.
  • Collateral is not restricted for secured personal loans meaning that the borrower can purchase whatever they want with the lent money. The only catch is the borrowed money cannot exceed the value of the collateral.
  • Lower Interest Rate. To the lender, secured personal loans are lower risk because the collateral will save them in the event that the borrower defaults. Since secured personal loans are lower risk, the borrower typically achieves a lower interest rate.
  • Larger Loans. Because secured loans are perceived to have less risk, the borrower can typically get approved for a larger loan easily.
  • Approval More Likely. It is easier to get approved for the loan you want when securing the loan with an asset. Again, this is because the loan is perceived to be less risky to the lender.
  • Longer Repayment Periods. The repayment period will be longer with a secured loan compared to an unsecured loan. This means you’ll pay less towards your loan each period, but be responsible for the loan for longer. Lenders will only extend repayment periods when the collateral will appreciate, for example, assets such as a house or gold.




  • Risk Losing Your Asset. If your financial situation ever changes and you default on the loan, you will likely lose the secured asset.
  • Asset Value. When you use an asset to secure a loan, it will be valued by the lender. That value is used to determine the amount of money that will be extended to you. Sometimes people think the value of their assets is more than it really is which can be disappointing when you go to take out a loan.
  • Potential Harm to Credit. Unfortunately, there is always a chance that your financial situation could change due to forces out of your control. If this happens to you and you default on your secured personal loan, your credit could take a hit for the worse.


What to Look for When Shopping for Secured Personal Loans


When shopping for a personal loan, you should consider more than merely a lender who will approve you. Below is a list of items to consider when shopping for a personal loan.


  • Before anything, you should figure out what you can reasonably afford. If you obtain a loan that you can’t afford, you’ll get yourself into a much worse position that you’re currently in.
  • Loan Amount. Once you figure out how much you want to borrow, you need to find a lender that is willing to extend you that amount. Inquiring lenders amount their maximum borrowing amounts is a good place to start.
  • Loan Terms and Conditions. The repayment term is the main thing to consider here, but be sure to read the fine print before signing anything. One thing to look out for his hidden fees, such as upfront fees, early repayment fees, ongoing annual fees or origination fees. As for the loan term, the longer the repayment period, the longer you will be responsible for the loan but the lower your payments will be.
  • Interest Rate. One of the most important things to look out for is the interest rate. You want to find a competitive interest rate by comparing offers from lenders to ensure you get the best deal possible.
  • Collateral Requirements. Some lenders don’t accept just any form of collateral. If you know the asset you’re going to use to secure the loan, talk with lenders to see if they will accept that specific piece of collateral.


Where Do I Get a Secured Personal Loan?


You can get a secured personal loan from a bank, credit union or online lender. Every lender is unique with their borrowing requirements and approval processes. To aide the application process, you can ask lenders what their borrowing requirements are ahead of time. By doing this, you will know if you meet the minimum requirements before you apply. As for the approval processes, many lenders are similar, but they usually do not openly disclose this information. One thing you can expect is: the larger the loan, the longer the approval process. In the eyes of the lender, the more money they’re extending, the more time they will want to spend assessing risk and evaluating the application.


What to Expect During the Approval Process


These days, lenders look at more than just your credit score. In theory, if you know what lenders are looking for before approving a loan, you can better plan for your application. Let’s explore common items lenders look at when approving loans below.


  • Basic Requirements. Before deep diving into the complex approval processes, you will need to be the age of majority in your area, have a bank account and be able to present valid government issued identification to qualify for any loan.
  • Credit Score and History. The actual credit score number communicates basic information to lenders. After they consider your credit score, they will deep dive into your credit report and consider credit history among other credit report items. They will consider outstanding debts, previous bankruptcies, accounts in collections and delinquent accounts. Cleaning up your credit report before applying for financing can increase your chances of approval.
  • Income and Expenses. The higher your income and the lower your expenses, the better. The income and expenses attributable to you determines how easily you can repay debt. Some lenders will ask for supporting documentation of your income and expenses. If possible, increase your income by getting a second job or asking for a raise. Alternatively, decrease your expenses but cutting out costs you don’t need or negotiating with vendors.
  • Employment History. If you have had stable employment for the past two years, you’re generally in the clear with lenders. However, spotty employment or unemployment can raise a red flag to lenders. Afterall, if you are unemployed, you cannot repay the loan which is a concern to the lender.
  • The lender will consider the asset you are putting up against the loan. Does it meet their value and asset requirements? This information is usually part of the minimum requirements that is available information to you before you apply.


Is a Secured Personal Loan the Right Option for Me?


As with all personal finance decisions, it depends on your unique financial circumstances and goals. Assessing your situation to determine if a secured personal loan fits into it is a good idea before you actually start applying. Below are some questions to ask yourself when deciding if a secured personal loan is right for you. 


  • Can my budget handle the loan payments?
  • What do I need the money for? Can the expense wait for another time?
  • What would a lender think of the loan purpose I am requesting?
  • Do I have an ideal asset to use as collateral?
  • Am I willing to lose the asset used as collateral?
  • Do I meet minimum requirements of lenders?


Bottom Line


Secured personal loans are useful for an array of large expenditures, from car purchases to home improvements to mortgages. With a secured loan, you can basically have it all! However, that doesn’t mean that a secured personal loan is right for you at the moment. Before moving forward with a secured personal loan, consider all of the respective pros and cons, related risks to you and your unique financial position.

Compare other types of Personal Loans.



Author Bio

Mohamed Konate

Mohamed Konate is a personal finance expert, blogger, and marketing consultant based in Toronto. He is a former financial services professional who worked at major Canadian financial institutions for many years. He managed the marketing strategy around various financial products ranging from credit cards to lines of credit. Mohamed is passionate about personal finance and holds a Bachelor's in Business Administration from the University of Quebec (Montreal) and a Master's in International Business from the University of Sherbrooke (Quebec). He is also the author of the Canadian Credit Card Guidebook.