The word “loan” hides different contracts
A home mortgage, a car loan and a credit card all let you spend money you do not currently have. But they are not interchangeable. Before comparing rates, identify whether the debt is secured or unsecured and whether it is a term or revolving loan.
MoneySense describes a secured loan as one backed by collateral pledged to the lender. Housing loans and car loans are examples. If the borrower does not repay, the lender may be able to repossess and sell the pledged asset to recover what is owed. The exact process depends on the contract and law; collateral does not make a loan risk-free for the borrower.
An unsecured loan does not pledge a specific asset as collateral. MoneySense gives credit cards, overdrafts and personal credit lines as examples, and says their interest rates tend to be higher than secured loans. “Unsecured” does not mean the debt can be ignored: late charges, interest and collection actions may still follow under the agreement.
Term loan: a repayment schedule
A term loan is repaid in instalments over a stated loan period. Housing, car and education loans are common examples. The agreement sets a payment schedule, and missing payments can breach the loan terms.
When assessing a term loan, look at more than the monthly amount. Check the rate type, EIR, total amount repayable, fees, and what changes after a promotional or fixed-rate period ends. A longer term can reduce each instalment but usually increases the total interest for the same amount borrowed.
Revolving credit: borrow, repay and use again
A revolving loan gives access to money up to an agreed credit limit. As you repay the amount used, credit becomes available to draw again. Credit cards, overdrafts and personal lines of credit are examples listed by MoneySense.
The flexibility can be useful for short-term cash flow, but it can also make borrowing less visible. A balance may remain for months while new spending replaces payments. Check whether interest is charged daily, whether a minimum payment applies, and what fees are charged for cash advances or missed payments.
MoneySense notes that revolving loans are usually higher-rate than term loans and may be recallable on demand, while term loans generally have fixed instalments and cannot be tapped again after repayment. These are general comparisons: the specific lender’s written terms determine how a particular facility works.
Match the tool to the need
Use a comparison table for each facility:
- Is a home, car or other asset pledged?
- Is there a fixed end date and scheduled instalment?
- Can repaid credit be borrowed again?
- What interest calculation and fees apply?
- Can the lender demand repayment under particular conditions?
This prevents a revolving credit line from being mistaken for a planned instalment loan or an unsecured line from being thought of as cost-free because there is no collateral. If a lender calls a product by a marketing name, read the contract to see which features apply.
The important question
Before borrowing, decide how the balance will be repaid and from what income. If there is no realistic repayment path, a generous credit limit is not extra income—it is a debt limit. Knowing the loan category helps you understand the risks; the rate, fees and your ability to pay decide whether the borrowing fits.
Sources
- MoneySense: Understand the types of loans — secured/unsecured and term/revolving definitions; verified 15 Oct 2026.