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Secured Debts

Secured debt is  a debt supported or secured by collateral, security or guaranty to reduce the risk associated with loan.  For example in a typical home mortgage the home is considered as a guarantee or security to the debt.  If there is a default on repayment, the provider of the loan can seize and sell the home pay back the debt under a foreclosure action.

A secured debt is part of a secured loan in which the borrower pledges some asset as security for the loan.  A secured debt is a lien owed to the creditor.  If the borrower fails to repay the loan on time, the creditor can take possession of the asset provided as security.  The creditor has the right to sell pledged asset to satisfy the debt by recovering the principal amount and interest owed by the borrower.

Secured debt is possible only if the borrower has something to pledge.  The borrower should have some physically available asset such as home, car, secured bonds or any other asset to pledge.  Secured debt ensures that borrower gets a fair deal in terms of interest rates because the security pledged with the lender is treated as a reassurance to the safety of lender’s money.

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