Secured Loan

Secured Loan

A loan with collateral. That is, the borrower pledges a property or other asset to the creditor and states that the creditor may take ownership if the borrower defaults on the loan. Sometimes the creditor even takes possession of the collateral, though this is not always the case. A common example of a secured loan is a mortgage, in which the lender has the right to take ownership of the real estate purchased with the mortgage if the property owner does not make payments in a timely manner. In corporate finance, all secured loans must be repaid before any unsecured loans are repaid.

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Secured loan. A secured loan is a loan that's guaranteed with collateral, such as a home or car. If you default and fail to make payments on time, the lender can take possession of your collateral and sell it to recover the loan amount.

In most cases, lenders charge a lower interest rate on a secured loan than on an unsecured loan of comparable size. An unsecured loan is guaranteed only by your promise to pay, not by collateral.