Secured Loan
A secured loan is a loan backed by collateral, the financial assets you own like a home or car or bond or share are considered collateral. The idea behind a secured loan is a basic one. Lenders accept collateral against a secured loan to motivate borrowers to repay the loan on time. After all, the anticipation of losing your home or car is a powerful encouragement to repay the loan and avoid any kind of repossession or foreclosure.
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When you approach any lender for a secured loan, then the lender will ask which type of collateral you’ll put up to “back” the loan. Let’s assume that if you have facing an issue in paying the loan, the lender can put a lien on the collateral (a lien is the legal term for the lender’s claim to the borrower collateral). However, the lender would keep the lien active until the loan I fully paid. At that point, the lien is lifted, and the collateral ownership reverts back to the borrower.
In the event the borrower defaults on a secured loan, the lender can retrieve the secured loan collateral and sell it to cover any losses incurred on the loan. That's why it's imperative for secured loan borrowers to understand what asset they're using as loan collateral, and to weigh the value of that asset against a possible lien or collateral loss if the secured loan falls into default
