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Should I Consolidate Debt with a Secured Personal Loan or an Unsecured Personal Loan?


Jun 07, 2022 5 min read

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What's a secured personal loan?

This blog post is sponsored by Fairstone, a responsible Canadian lender with almost 100 years of lending experience. Read our advertiser disclosure.

If you have multiple sources of debt, like high-interest credit card debt, overdue bills and retail store financing, there are many benefits to consolidating bills into one monthly personal loan payment. Not only does debt consolidation make your payment schedule easier to manage, you could also reduce interest charges and pay down debt faster.

There are two main ways to consolidate your debt: with a secured personal loan or an unsecured personal loan. Let’s take a look at the differences between the two.

What is a secured personal loan?

A secured personal loan is backed by collateral – typically the equity in your home. When you choose to secure your loan, the lender places a “lien” on your property. The lien gives your lender security and greater confidence that you’ll pay back your loan. If you don’t pay back your loan, the lienholder can assume ownership of your home. Therefore, secured personal loans offer lower interest rates and lower loan payments.

What is an unsecured personal loan?

While a secured personal loan is backed by collateral, an unsecured personal loan is backed by a loan contract that you sign when taking out the loan. Since your lender cannot take ownership of an asset, they take on more risk when issuing an unsecured loan. As a result, the interest rate offered to you will be slightly higher.

Since an unsecured personal loan doesn’t require homeownership, the application process is quicker – you could have your loan the same day you apply. And typically, there are no prepayment penalties, giving you the flexibility to make extra payments or pay off your loan early.

The difference between Fairstone’s unsecured personal loans and secured personal loans

Secured Personal LoanUnsecured Personal Loan
Loan amounts: $5,000-$60,000Loan amounts: $500-$25,000
Secured Personal Loan Loan amounts: $5,000-$60,000
Unsecured Personal Loan
Loan amounts: $500-$25,000
Term: 36-120 monthsTerm: 6-60 months
Secured Personal Loan Term: 36-120 months
Unsecured Personal Loan
Term: 6-60 months
Best value for homeowners: lower interest ratesNo homeownership required
Secured Personal Loan Best value for homeowners: lower interest rates
Unsecured Personal Loan
No homeownership required
Prepayment penalties: YesPrepayment penalties: No
Secured Personal Loan Prepayment penalties: Yes
Unsecured Personal Loan
Prepayment penalties: No
Time to process: 3+ days (varies by location)Time to process: <1 day
Secured Personal Loan Time to process: 3+ days (varies by location)
Unsecured Personal Loan
Time to process: <1 day

Debt consolidation can be done using any of Fairstone’s loan products – secured personal loans and unsecured personal loans – with similar benefits.

The benefits of debt consolidation with a personal loan

  • Combine multiple bills into one, easier to manage loan payment: If you’re overwhelmed with multiple payment deadlines, debt consolidation can combine multiple bills into one monthly loan payment, offering you a simplified payment schedule.

  • Reduce your overall debt repayments: Consolidating debt with a personal loan often results in your monthly debt repayments going down, giving you more breathing room in your budget.

  • Pay off debt faster with a structured payment schedule: High-interest debt can take a long time to pay off, especially if you’re only making the minimum payment. By consolidating your debt with a personal loan, you’ll be paying off more of your debt each month and accruing less interest, meaning you’ll be able to pay down your debt faster.

  • Save money on interest charges by avoiding late or missed payments: By combining your bills into one affordable monthly loan payment, you’ll be less likely to miss a payment and avoid additional interest charges and late payment fees.

  • Improve your credit score: By making on-time payments and reducing your debt over time, you’ll be demonstrating positive financial behaviours, which both have a positive impact on your credit score.

  • Reduce debt repayments even more if you choose to secure your loan: By securing your personal loan, you could qualify for a lower interest rate, which results in a lower monthly loan payment. Additionally, secured personal loans often offer longer repayment terms, reducing your payments even further and improving your cashflow.

What's the difference between a secured loan and an unsecured loan?

The advantages of using a secured personal loan for debt consolidation

Homeowners can leverage home equity and choose to use a secured personal loan for debt consolidation, and as a result, access additional benefits such as lower interest rates, lower payments and higher loan amounts.

  • Lower interest rate: With a secured personal loan, you’ll have access to lower interest rates and often lower interest charges compared to the charges you have on high-interest credit cards and other outstanding accounts. A debt consolidation loan can also typically offer you lower, more manageable payments. And the more budget-friendly your loan payments are, the more likely you are to stay on track with your balance. As a result, you’ll reduce interest charges and save money.

  • Lower payments: Here’s a typical example of a loan payment plan to demonstrate the savings a secured personal loan can offer:

$10,000 loan amount at 19.99% interest on a 120-month loan term. Bi-weekly payments of $87.*

Let’s compare the payment to an unsecured personal loan example:

$10,000 loan amount at 26.99% interest on a 60-month loan term. Bi-weekly payments of $152.**

As demonstrated by the payment examples, you can see how much lower your loan payments could be on a secured personal loan.

  • Higher Loan Amounts: Another benefit of securing a personal loan is that you’re often able to borrow more money than you can with an unsecured personal loan. With a secured personal loan from Fairstone you can borrow up to $60,000 to consolidate debt, manage home renovations and more – compared to a maximum of $25,000 with an unsecured personal loan.

Debt Consolidation Loan Canada

The bottom line: Consolidating debt with a personal loan – secured or unsecured – are both good options

When deciding if a secured personal loan vs. unsecured personal loan is right for you, it’s important to consider your current financial situation. If you have a stable household income and you’re confident that you’ll be able to stay on track with your loan payments, then a secured personal loan could be your best borrowing option.

Fairstone offers secured and unsecured personal loans from $500-$60,000 online and at 240+ branches across Canada. Whether you get a loan online or in branch, you’ll receive one-on-one service from a knowledgeable Fairstone Lending Specialist. They’ll work with you to customize your loan and create a payment plan that fits your needs and budget.

How to get a personal loan from Fairstone

Apply for a Fairstone loan in 3 steps:

  1. Get a loan quote – no obligation, no impact to your credit score

  2. Find out how much money you could qualify for in minutes

  3. Ask your Fairstone Lending Specialist for an updated quote if you’re interested in a secured personal loan

  4. Have your money in as little as 24 hours

Get a Loan Quote from Fairstone

Completing a loan quote won’t impact your credit score and there’s no obligation to take out the loan. In addition to finding out how much money you could qualify for, you can find out what your loan payments might be.

Get a Loan Quote

*Payment as low as $87 based on a 120-month loan term at an annual interest rate of 19.99%. Important terms and conditions apply. On approved credit.

**Payment as low as $152 based on a 60-month loan term at an annual interest rate of 30.99%. Important terms and conditions apply. On approved credit.

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Fairstone is a leading provider of responsible lending solutions, with a nearly 100-year legacy in Canada. As an operating subsidiary of Fairstone Bank of Canada, Fairstone offers personal loans and home equity loans to near-prime customers online and in more than 250 branches coast to coast. More at

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