The Difference Between Secured and Unsecured Loans

The Difference Between Secured and Unsecured Loans

So, you’re getting a new car — congratulations!

If you’ve made it this far, you’re probably weighing out your options when it comes to getting a Toronto car loan. You’re probably looking into different lenders, the various requirements they look for in an application and the best tips on helping ensure you’re a standout candidate.

If that’s the case, you’ve probably seen the words “secured” and “unsecured” loans being tossed around quite a bit. Now, if you don’t know what those are and what makes them different, you’re come to the right place!

Besides choosing the right lender for you, it’s important to understand what sort of lender they are and the different expectations and risks involved for each. The more you know, the more informed your decision will be when you apply for that Toronto car loan.

Fasten your seat belts and let’s begin!

Applicant talking with Toronto car loan lender about secured and unsecured loan offerings.

Secured vs. Unsecured Loans

While many people are familiar with the different types of lender options (i.e. banks, credit unions, ect.), they’re less familiar with the terms secured and unsecured loans. Knowing the difference will not only give you an idea of which types of loans will be more affordable than others but will also help you understand what you’re locking yourself into.

Secured Loans

All secured loans have some sort of collateral attached to them. In the case of Toronto car loans, the collateral would be your car.

If you fail to make monthly payments with a secured lender, they’re within their rights to repossess your car, sell it again and recover the money they lost with your loan agreement. This makes it a low risk loan for the lender as the collateral ensures that there’s a back-up method to pay off the balance on the loan. Because of this, interest rates for secured loans are typically much lower than those with unsecured loans.

Benefits Of Secured Loans

When it comes to secured loans, it all comes down to knowing your finances and budgeting accordingly.

If you’ve done the math and confident that you can afford to make monthly payments, you really have nothing to worry about. In fact, you’ll be able to relish in the affordable interest rates and be on your way to fully owning your new ride in no time.

Secured loans are also a great way to improve your credit score. When done correctly, if you pay your monthly bills on time, it can give your score the boost it needs, especially if you’re recovering from bad credit.

Disadvantages Of Secured Loans

The biggest disadvantage to getting a secured loan is the possibility of getting your car repossessed.

When a car owner fails to make monthly payments, the lender has the right to take away the car for good. In cases like this, your lender can send a repo team to tow your car right off your driveway, no questions asked. Afterwards, the car will typically get sold at auction so the lender can try and recoup for the loss. But it doesn’t end there! If the car is sold at a price that doesn’t cover the full amount left on the balance, the responsibility then falls back to the initial car owner to pay the remaining amount.

Getting caught in a situation like this is an absolute worst case scenario, which is why it’s best to avoid this entirely. If at any point you feel like it’s getting hard to make ends meet or you’re spiralling deep into debt, call you lender immediately. Explain your situation and let them know what you can afford going forward and see if they’ll be able to negotiate a new payment rate with you.

Unsecured Loans

Unlike secured loans, there is no collateral attached to unsecured loans. Since this is a high risk loan for lenders, interest rates are much higher with this option. Unsecured loans are actually considered to be “signature loans” for this reason as applicants technically don’t have to give up anything to seal the deal, just sign the agreement.

Benefits Of An Unsecured Loan

The most obvious benefit to this option is that car owners don’t have to worry about ever getting their car repossessed.

Because they don’t have to offer any collateral, they never have to worry about their car being taken away from them, even if they suddenly decide to stop making car payments. Now, that doesn’t mean you can drive into the sunset and pretend these payments don’t exist. Lenders have the right to send a collections agency to try and recoup the money. Missed payments will also have an effect on your credit score, so it’s best to stay on top of payments.

Disadvantages Of An Unsecured Loan

While on the one hand, unsecured loans are great because there’s no chance of repossession, car owners are definitely paying for that peace of mind with higher interest rates which are often associated with unsecured loans.

Because these loans are also more high risk for lenders, their application requirements are a lot more strict to help ensure the applicant they’re approving is suitable and reliable enough to make monthly payments. They requirements typically involve checking your credit history, credit score, as well as your annual income.

Which Loan Is Right For Me?

Luckily there’s no right or wrong answer to this — it all comes down to what realistically works best for you and your finances.

All you have to do is weigh out your options, figure out your budget and proceed from there. If you want more ownership over your car, you’ll probably prefer an unsecured loan. If you’re confident you can make monthly payments and aren’t worried about ever having your car repossessed, a secure loan might be the best route especially if you want to enjoy lower interest rates. The decision of picking out a Toronto car loan is yours, it just has to be smart and calculated.

Applicant securing Toronto car loan.

Common Car Loan Lenders

Now that you know the difference between secured and unsecured loans, we’re going to breakdown some of the different lenders available in the market for Toronto car loans. Depending on which ones you go with, lenders can offer both secured and unsecured loan options, just be sure to confirm that with the lender themselves.

Banks and Credit Union

We all have an account with a bank or credit union, so it’s no surprise that they’re typically people’s first search when looking into car loan offerings. Going with your bank or credit union can be extremely convenient, especially if you already have an account with them, it’s easier to manage all your finances in one spot. With that said, both are known to have some of the strictest application requirements which typically include a minimum income and credit score over 650.


If you’re looking for a one-stop shop to buy your car and get a car loan, you don’t have to look any further than doing it right at your dealership. If you’re physically going into offices to consult with lenders, going to a dealership is the most convenient. They typically work with their automaker’s financing group so they can offer deals directly from there but be careful! Before you sign the dotted line, make sure you’ve done your research beforehand to know what the average interest rates are, as dealerships may try to upsell you and get a cut for themselves. If you know the rates of other competitors, you’ll be in a better place to negotiate better rates with them.

Alternative Lenders

Going to alternative lenders (especially online ones!) is extremely helpful especially for comparing rates since they’re typically available online. But before you bounce on the best deal you see, make sure to research the lender first to confirm its legitimacy. Unfortunately, there are a lot of fraudulent online lender so be sure to check for reviews on other platforms aside from their site, like Google reviews.

A great (and safe!) lender to consider is, who have built a reputation for securing loans for people of all financial backgrounds. Whether you have good credit, bad credit, or filed for bankruptcy in the past, they believe everyone should have equal opportunity to own a car, which is why they’ll help anyone get one. They work alongside their partners, which include some of the biggest and trusted financial institutions, to get a car loan that works for you.

Applicant filling out online application for Toronto car loan.

Quick Tips On Getting Your Car Loan Approved

Now that you know exactly what unsecured and secured loans are, as well as some of the lender options in the market, you’re ready to apply for that loan! Before you submit that application, here are some quick and important tips to consider to help up your chances of approval.

Do Your Research

It’s important to never go into any situation blindly, and this is especially true when it comes to applying for car loans. So if you’re reading this article right now, you’re on the right track. Keep that momentum going by looking into different lender options. Find out what the application requirements are and see if you meet them or not (i.e. income, credit score, etc…). If you do, get an idea of different interest rate offerings and use that information to negotiate with lenders so you can strike the best deal for you.

Check Your Credit Score

Whether you’re getting a car or not, it’s always important to check your credit score once in a while to see where you stand. Depending on how high or low it is, it can say a lot about your borrowing habits. This can impact the type of loan you can qualify for and interest rate offerings. For example, those with high credit scores can typically qualify for a Toronto car loan with just about any lender they choose, which gives them a lot of negotiating power. Those with high score can typically qualify for better interest rates as well.

On the other hand, those who have bad credit may struggle getting loan approval if they don’t go to the right lender. As mentioned earlier, they might not have as much luck with a bank but better off going with an alternative lender like, The best part is, once they’re gotten approval from a lender, making monthly payments on their car loan will actually help boost their credit score and get it back to a healthy place.

Triple Check Your Application

The last little tidbit may seem like common sense, but it’s a commonly missed step that can actually affect your approval. As with any application, make sure you triple check all your information and include all the necessary documentation that’s asked from you. For any government issued I.D.s or other documents, make sure they’re still valid and up-to-date. Any missing information or expired documentation can make your application invalid which will result in you having to apply again. To save time, it’s never a bad idea to check your application just one more time.

Now that you know all there is to know about getting a Toronto car loan, you’re ready to move on and actually start applying now! Just do your due diligence and you’ll be driving your car out of the dealership in no time. Good luck!

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