A loan in which the borrower pledges some asset, like a car or house, as collateral for the loan. If the borrower defaults, the lender can seize the collateral to recover their losses.
Secured Loan
Definition
A loan in which the borrower pledges some asset, like a car or house, as collateral for the loan. If the borrower defaults, the lender can seize the collateral to recover their losses.
Example
John took out a secured auto loan, using his new car as collateral; if he fails to make payments, the bank has the right to repossess the vehicle.
Key Points
- 1Backed by collateral (asset).
- 2Typically offers lower interest rates than unsecured loans.
- 3Lender can seize collateral upon default.
- 4Common for mortgages and auto loans.
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