A Secured Loan is a type of borrowing where the borrower provides an asset as security for the loan.
The pledged asset is called collateral.
Common examples include:
- Home loans secured by property
- Vehicle loans secured by the vehicle
- Loans against gold
- Loans against fixed deposits
- Loans against securities
- Certain business loans backed by property or other assets
Because the lender has collateral, Secured Loans may offer:
- Lower interest rates
- Higher loan amounts
- Longer repayment periods
- Easier approval in some cases
If the borrower fails to repay the loan, the lender may have the legal right to take possession of or sell the collateral, subject to the loan agreement and applicable law.
For example, in a home loan, the property usually remains mortgaged to the lender until the loan is repaid.
A Secured Loan is different from an Unsecured Loan, where no specific asset is pledged.
Although collateral reduces the lender’s risk, approval still depends on factors such as:
- Income
- Repayment capacity
- Credit Score
- Value of the collateral
- Loan-to-Value ratio
- Existing debt
Borrowers should remember that using an asset as collateral creates a real risk of losing that asset if repayments cannot be maintained.