Saturday, November 13, 2010
A secured loan is a type of loan in which the borrower puts up some form of collateral, such as a car or house, or secure the loan. In case of a default, the lender can retrieve his/her losses by taking possession of the asset and selling it off. Examples of secured loans include mortgage loans and car loans.
Secured loans are associated with lower risks for the lender and a lower interest rate to the borrower. From the lender's perspective, a default on the borrower's part will still lead to some sort of recouping of the original loan amount. This is why a lender must underwrite these loans as a "no lose" situation for them. From the borrower's perspective, the lower rates compared to an unsecured loan are better because that means lower payments.