Secured Loan
A loan backed by collateral that the lender can seize if the borrower defaults.
What is Secured Loan?
A secured loan is any loan backed by collateral — an asset pledged by the borrower that the lender has the legal right to seize and sell if the loan is not repaid. Because the collateral reduces the lender's risk, secured loans typically carry lower interest rates than unsecured loans of the same size. Common examples include mortgages (collateral: the home), auto loans (collateral: the vehicle), home equity loans (collateral: home equity), and some personal loans. The trade-off for the borrower is the risk of losing the collateral asset upon default. Secured loans are also more accessible to borrowers with limited credit history, as the collateral mitigates risk for the lender.
Example
A buyer purchases a $50,000 car with a $10,000 down payment and a $40,000 auto loan at 6% APR. The car serves as collateral. If the buyer stops making payments, the lender repossesses the car. The secured nature of the loan allows the lender to offer 6% — far below the 18–24% APR on an unsecured personal loan for the same amount. The gap between secured and unsecured rates reflects the value of having collateral.
Source: Investopedia — Secured Loans