What Is a Secured Loan?

A secured loan is a debt where the borrower puts up an asset as collateral for the loan. Secured debt might involve an automobile or a second mortgage on your home. Because the creditor's loan is secured by this collateral, lenders take possession of the asset, if the debtor stops making payments.

Real Property and Movable Property

The type of secured loan people think of when borrowing money is a loan secured by real property or real estate. You can also use "movable property" as securities in a secured loan. Movable property is just that - private property which can be moved from one place to another.

Beside personal vehicles, there are all kinds of movable property that might serve as collateral. If a piece of your property has estimated value debtors recognize, it can be used to secure a loan. Below are the most common movable properties used to secure loans.

Car
Jewelry
Art
Furniture
Clothing
Writing
Household Items
Livestock

What Is an Unsecured Loan?

Unsecured loans are debts that don't include collateral assets, such as student loans and credit card debts. If you default on one of these loans, the credit card company or bank can't seize your house or car. What you risk is losing your credit rating, and therefore the ability to obtain an unsecured loan in the future, or the prospect of obtaining it at a big interest rate.

Secured Loan Advantages

There are two main purposes for entering into a secured loan. One is to get favorable terms, such as lower interest rates or a longer repayment schedule. The other is to get a loan, when circumstances dictate that a credit institution would not extend a credit line, otherwise. This type of debt structure is attractive to bankers and creditors, because it mitigates the risk that they loan money and never see it again.

Mortgage Loans

Mortgage loans are a common type of secured loan. A mortgage loan is when the collateral you're putting is real property, most commonly your house. Mortgage loans vary wildly, with many different types of interest rates, periods of maturity, and methods of payment. The homeowner pledges his or her right to the property, called an "interest", as security for the loan.

Mortgage lending is how home ownership is financed in the United States and other countries. These secured loans amortize over a long period of time, often 30 years. If you stop making mortgage payments, the lender has the option (at a certain point) to foreclose or repossess the house. This involves all sorts of hassles on either side, but the lender is protected from losing the amount of their original loan, by maintaining the ability to foreclose on your home.

Getting a Secured Loan

So if you want to make a secured loan, you need either real property or movable property that a bank or lending institution finds value in. If so, you can lay that asset on the line and get better terms on your debt. Remember, though, if you default, you stand to lose that private property.

About the Author
John Clifton is a writer for AskDeb.com, a how-to website which answers questions from real readers. To read more about secured debt, read the AskDeb article on secured loan.