Secured vs. Unsecured Lending: What Newcomers to Canada Should Know

Understanding Secured and Unsecured Lending

Borrowing money may be part of managing your finances in Canada. You might consider credit for a major purchase, an unexpected expense or a future goal. Learning how borrowing works may help you explore the options available to you and the costs involved.

Some types of borrowing are secured by an asset, such as a home or investments. Other types do not require security. Interest rates, fees, repayment terms and other features may vary depending on the type of credit.

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This article for newcomers explains secured and unsecured lending in Canada and equips you with some borrowing basics. It also offers information to consider as you explore what may suit your needs and budget.

What to Know About Debt

When you use credit or take out a loan, the money you owe becomes debt. You agree to repay this money based on specific terms. These may include the amount and timing of your payments, as well as any interest or fees that may apply.

Debt may come from different sources. For example, your credit cards, car and student loans, personal loans and lines of credit. In some cases, the amounts you owe to a utility provider or government program may also be considered debt.

How you manage debt may affect your overall finances and credit history. Late or missed payments may lead to additional costs or collection activity. Keeping track of what you owe and when payments are due may help you manage your debt.

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Interest, Fees and the Cost of Borrowing

Borrowing money may come with additional costs. The money you receive is called the principal. Interest is the cost of borrowing, while fees may include annual, late or overdraft fees, depending on the product.

Interest rates may vary based on the type of credit, the lender and your financial circumstances. Some borrowing products have a fixed interest rate, which stays the same for a set period. Others have a variable interest rate, which may change over time.

Knowing the interest rate and any fees that apply may help you estimate your borrowing costs and plan for repayment.

How Secured Lending Works

With secured lending, an asset or other form of security is connected to the money you borrow. This may include a home, vehicle, investments or cash deposit. If you do not repay the debt according to the agreement, the lender may have the right to take the asset or security.

Examples of secured lending may include:

The security provided may affect the interest rate, borrowing limit and other terms offered by the lender. These may vary based on the lending product and your financial circumstances.

If you are considering secured lending, you may want to look at the interest rate, fees and repayment terms. You may also want to consider what could happen to the asset or security if you are unable to repay the debt.

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How Unsecured Lending Works

Unsecured lending does not require you to provide an asset as security. When you apply, a lender may consider factors such as your income, credit history and overall financial situation. If you are new to Canada and have a limited credit history, the credit options available to you may vary.

Examples of unsecured lending may include:

Unsecured lending may be considered for different borrowing needs, including some everyday or unexpected expenses. Interest rates, borrowing limits and repayment terms may vary by product and individual circumstances.

Before You Decide to Borrow

People borrow money for many reasons. You may be considering a larger expense, such as education or a home, or looking at credit for a shorter-term need. Whatever the reason, borrowing may come with interest, fees and repayment commitments.

Keeping track of your balance and making payments by their due dates may help you manage unsecured debt and your credit history over time.

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Before you borrow, you may want to:

Review your income and expenses to see what may fit your budget
Check the interest rate and any fees that may apply
Consider the reason for borrowing and how it fits with your financial goals
Look at how much you may need to repay and how long repayment may take
Ask about any terms or conditions you do not understand

Taking on debt also means adding payments to your budget. Considering these payments along with your other expenses and savings goals may help you decide how much borrowing may work for your situation.

TD offers debt management tools and resources with information about managing debt and repayment. You may also visit the TD Borrowing page to learn more about different borrowing options.

As you settle into life in Canada, your financial needs and goals may change. Learning how secured and unsecured lending work, along with the costs and repayment terms involved, may help you consider your borrowing options.

Why Choose TD?

More than 160 years of helping Canadians:

TD has a proud history of delivering financial solutions to Canadians for more than 160 years. TD also brings a century of experience helping newcomers navigate the unique challenges of the Canadian banking system.

With over a thousand branches, and the ability to also serve you in more than 80 different languages, TD has become one of the largest and most trusted banks in Canada, now serving 16 million Canadians.

TD offers online support and resources of interest to newcomers on topics such as banking basics, moving to Canada, credit score essentials, and more. TD is open longer hours for your convenience and has thousands of ATMs across Canada to help you take care of your everyday banking needs quickly and easily.

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Book an appointment to talk with a TD Personal Banking Associate about the TD New to Canada Banking Package. You can book online right away, or visit the TD website to learn more.

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