How Do Secured Personal Loans Work?

How Do Secured Personal Loans Work?

Written by Fairstone
Fact-checked by Caitlin Wood
Last Updated December 24, 2020
Fairstone Canada

For this blog, we’ve teamed up with our partners at Fairstone.

Most homeowners have the option of securing their loan. The benefit? Secured loans can help you access lower interest rates and more money. Our partners at Fairstone helped us answer some frequently asked questions about secured personal loans, and how they work.

What is a secured personal loan?

A secured personal loan is a loan that is backed by an asset. Lenders typically require you to back the loan with a house. However, some secured loans can also be backed by something other than a house, like a car, for instance. By securing your loan, the lender has greater confidence that you’ll pay back the amount you borrow and make on-time payments. This generally allows you to access lower interest rates and could help you qualify for a larger loan amount.

You can use a secured personal loan to consolidate debt, cover unexpected expenses, cover the cost of larger, planned expense like a home repair and more.

How is a secured loan different to an unsecured loan?

Unsecured loans don’t require you to be a homeowner to borrow money. Instead, the loan is backed by a signed contract that says you agree to pay back the amount borrowed. Unsecured loans may have higher interest rates, and a lower maximum loan amount. However, the application process for an unsecured loan is often quicker since there’s less paperwork involved

You can also check out this in-depth article about the difference between secured and unsecured loans for more information.

How do secured personal loans work?

Securing a loan involves placing a lien on your asset (e.g. your home). A lien is a legal term, and it basically provides security to the lender that you’ll pay back a loan. When you apply for a secured loan, you’ll have to complete some paperwork that allows the lender to become a lienholder on the asset. If you default (don’t pay your loan back), technically the lienholder could assume ownership of the asset. The most common form of an asset-backed loan is a mortgage on a house.

The application process might take a bit longer than with an unsecured loan, but the benefit of secured loans is that you’ll likely qualify for a lower interest rate and can borrow more money. Once you’ve paid off your secured loan, the lien is lifted.

Aside from the lien on your property, a secured loan is similar to an unsecured loan. You and your lender will agree on a loan amount, interest rate, term and payment schedule that works for you. The loan will be paid back in installments or payments over the course of your term. A portion of each payment will go to interest, and another portion to the principle balance of the loan. The more you pay down your balance, the more your payments will go toward the principle rather than interest.

Is a secured personal loan a good idea?

It depends on your priorities. If you’re a homeowner and don’t mind a longer application process, a secured loan is a great option since you’ll likely qualify for a lower interest rate. If you need quicker access to money and don’t mind a higher interest rate, an unsecured loan may be a better option for you. If you don’t own a home, you likely can’t qualify for a secured loan, unless a lender allows you to use some other type of asset to back the loan. But luckily, there are lots of unsecured loan options out there as well!

How can I apply for a secured personal loan?

Whether you’re interested in a secured or unsecured loan, our partners at Fairstone can help. You can get started by requesting a free no-obligation loan quote at Just enter a few simple details and they’ll tell you how much money you could qualify for, and what your payments might be. The entire process only takes a few minutes.

If you’re happy with your quote, a Fairstone Lending Specialist will be in touch to help you customize your loan, and they can help you make the final decision about securing your loan.

Get started with a free loan quote today, or learn more about Fairstone’s loans to see if they’re the right option for you.

Fairstone Financial is a leading alternative lender in Canada, they have been helping Canadians since 1923. Their mission is to provide Canadians, with fair to good credit, with an affordable alternative to payday loans.

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