Secured Loan

A Secured Loan is a loan that is backed by property in the possession of the borrower.  A secured loan reduces the risk to the lender because they have the ability to repossess or foreclose on the property.  The property used to secure a loan is called collateral.

The most common example of a secured loan is a mortgage.  By definition, a mortgage is a legal agreement that involves a loan secured by the home itself.  If payments were to stop on a mortgage, the lender has a legal right to foreclose on the home, and sell it to recover the remaining principal on the loan.

In the situation of a car loan, the loan is secured by the car itself.  If payments stop on the loan, the lender has the right to seize, or repossess, the car.

A secured loan is one of the two most common forms of consumer loans, the other being an unsecured loan.