To get a secured personal loan you must provide collateral. Collateral can be any valuable asset like a home, car, investment portfolio or antiques.

What it means to secure a personal loan

A secured personal loan is backed by some form of collateral. Collateral is an asset like a home, car or jewelry that a lender can seize if you don’t pay back your loan. The use of collateral helps mitigate the lender’s financial losses if you default on loan payments.

The key difference between a secured personal loan and an unsecured personal loan is that you must provide an asset as collateral to get your loan.

How to secure a personal loan

Getting approved for a secured personal loan usually takes longer than an unsecured personal loan, as you will need to complete additional paperwork that allows the lender to become a lienholder on your asset. The lender may also want to confirm the value of your personal asset by getting a professional appraisal.

When you get a secured loan, your lender will put a lien on the asset you provided to secure your loan. A lien is a legally enforceable right and allows the lienholder to take ownership of the asset in lieu of payment if you break your loan contract. Once you have paid off the secured loan, the lien on your asset will be lifted.

How much collateral is needed for a personal loan?

Whether or not an asset provides sufficient for your loan will depend on the lender’s requirements and how much you want to borrow.

Lenders will generally only let you borrow between 50% and 90% of the total value of the asset you’re using as collateral. In rare circumstances, depending on the creditor and the kind of asset, you might be offered even less.

Interestingly, the assessed value of your collateral may also depend on what type of asset you use. If the asset’s value has the potential to fluctuate widely, you may not be offered as much.

How to prove ownership of collateral

Your lender will need to see legal documents that prove you are the owner of the home, car or other assets you’re using as collateral.

For example, in Canada, each province and territory is in charge of running its own land register to document property ownership, and your lender can request to see a copy of this land title. You may also have to provide your property tax bill and your mortgage statements.

For a car title loan, your lender will want to see a copy of the vehicle title registered in your name.

Types of collateral that can be used

Assets that you can use to secure a personal loan can include:

Real estate.
Savings and investment accounts.
Vehicles.
Insurance policies.
Valuables like art works or jewelry.

What are the pros and cons of securing a personal loan?

Pros

Securing a personal loan with collateral can result in lower interest rates, enabling you to save a significant amount of money over the life of the loan.
Secured loans have higher borrowing limits because the lender has an asset to seize if you fail to make payments.
Since the lender is protected from financial loss, providing collateral enhances your likelihood of loan approval.

Cons

It often takes longer to be approved for a secured loan because the value of the collateral needs to be verified before the loan can close.
There may be additional expenses such as appraisal costs or legal fees.
If you default on the loan, you risk losing a significant asset, such as your vehicle.

Typically land is considered a legitimate form of collateral. However, some lenders may be resistant to taking land as collateral because it can be a difficult asset to seize.

Yes, you can use property, including your home, as collateral for a personal loan in Canada.