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Secured vs. unsecured loans: What’s the difference?

When you decide to borrow money, one of the first questions a lender might ask you is: “do you want to secure your loan?”

Your answer to this question is important. Deciding whether or not to secure your loan will determine:

  • The loan application and approval process
  • How much money you can borrow
  • How fast you can get your money, and
  • How long you can take to pay your money back.

Whether you can secure your loan also depends on the assets you have available.

You secure a loan against an asset, like a house. When you do this it’s called a lien on your asset."

“Securing” a loan

You secure a loan against an asset, like a house. When you do this it’s called a “lien” on your asset. Technically, the asset then becomes part of the debt you owe; as you pay the loan back, your ownership of the asset increases. The most common example of a secured loan is a mortgage: when a person decides to take out a mortgage to buy a house, they secure the money they borrow (the mortgage) with their new home. Over time as the mortgage is paid off, they own more and more of their home.

People choose to secure their loan because:

  • It gives them access to lower interest rates
  • They can borrow more money
  • They can take longer to pay the loan back (a ‘longer term’ loan)

Read more about our secured personal loan — personal loan for homeowners — or our first and second mortgages.

Unsecured loans

Unsecured loans are backed by a loan agreement, not by an asset. The borrower and the lender work together to determine the loan size (how much can be borrowed), term (how many months the loan can be paid back over) and interest rate. Interest rates are determined based on a number of factors. To learn more about the factors that affect interest rates, check out our infographic.

The most common example of an unsecured loan is a personal loan, like our small and medium personal loans.

People choose unsecured personal loans because:

  • They are easier to qualify for
  • The application process is fast and does not involve property assessments
  • They can get money faster

In summary, there are 5 things to consider when deciding whether or not to secure your loan:

1. Do you rent or own a home?

2. How much money do you want to borrow?

3. Are you willing to back your loan with an asset, like your home, to borrow more money?

4. How long do you want to take to pay back your loan?

5. How soon do you need the money?

Your answer to these questions will help you decide if securing your loan is right for you.

Are you interested in finding out how much you could borrow with a personal loan from Fairstone? Try our “How much can I borrow?” calculator to find out which of our loan solutions could fit your needs and lifestyle.


This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.