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 seize the home and sell it to recoup the remaining principal on the loan.

In the situation of a car loan, once again 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 loan, the other being an unsecured loan.