Finances 101

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower. From the creditor’s perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may satisfy the debt against the borrower rather than just the borrower’s collateral.