When looking for a loan in Canada, one of the first decisions you’ll face is whether to choose a secured or unsecured loan. Each type has its own advantages, risks, and ideal use cases. Understanding the difference can help you make smarter borrowing decisions and save money in the long run.
In this guide, we’ll compare secured vs. unsecured loans in Canada in 2025, so you know exactly what to expect.
🔍 What Is a Secured Loan?
A secured loan requires collateral — an asset that the lender can claim if you fail to repay. Common collateral includes:
- Your car
- Savings account or investment portfolio
- Home equity (in the case of a home equity loan or line of credit)
Because the loan is backed by collateral, lenders see less risk and typically offer:
- Lower interest rates
- Higher borrowing limits
- Longer repayment terms
🔍 What Is an Unsecured Loan?
An unsecured loan does not require collateral. Approval is based mainly on your creditworthiness, income, and financial history.
These loans are riskier for lenders, so they usually come with:
- Higher interest rates
- Lower borrowing limits
- Shorter repayment periods
Common examples include credit cards, personal loans, and lines of credit without collateral.
💰 Interest Rates: Secured vs. Unsecured
| Loan Type | Typical Interest Rates (Canada 2025) | Risk to Borrower |
|---|---|---|
| Secured Loans | 4% – 10% | Moderate — risk of losing collateral |
| Unsecured Loans | 8% – 25%+ | Lower risk to assets, higher cost |
Because secured loans are less risky for lenders, you benefit from lower rates. But keep in mind, failure to repay can mean losing your asset.
✅ Pros and Cons
| Feature | Secured Loan | Unsecured Loan |
|---|---|---|
| Collateral Needed | Yes | No |
| Approval Odds | Higher, even with lower credit scores | More dependent on credit history |
| Interest Rates | Lower | Higher |
| Loan Amounts | Typically higher | Generally lower |
| Risk | Potential asset loss | No direct asset risk |
| Application Speed | Slower, due to appraisal/verification | Faster, often fully online |
🔄 Which Loan Is Right for You?
Choose a secured loan if:
- You have valuable assets to use as collateral
- You want a lower interest rate
- You need a larger loan amount
Choose an unsecured loan if:
- You don’t own assets or prefer not to risk them
- You need quick funding
- You have a strong credit history
💡 Tips When Considering Either Loan Type
- Read the fine print carefully — especially on penalties for missed payments.
- Don’t borrow more than you can repay, regardless of loan type.
- Consider loan terms and fees, not just interest rates.
- Use loan comparison tools like LoanConnect to find the best offers.
⚠️ Beware of Risks
- With secured loans, if you default, lenders can seize your collateral.
- Unsecured loans often have higher rates, which can lead to expensive debt if not managed carefully.
📌 Final Thoughts
Both secured and unsecured loans have their place in the Canadian borrowing landscape. The best choice depends on your financial situation, risk tolerance, and borrowing needs.
By understanding these differences, you’ll be better equipped to select a loan that fits your goals and budget — helping you avoid unnecessary costs and stress.