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Video Transcript

When shopping for loans borrowers will often see the terms “secured” and “unsecured” used to describe a loan. So, what is a secured loan?

Secured loans are loans provided by a lender to a borrower, with an asset used as collateral to protect the borrower against missed repayments or defaults. Loans are most commonly secured against the borrower’s home, although other high value assets, such as a car, may be used as collateral. If the borrower misses a series of payments or the account defaults, the asset used to secure the loan is seized and sold as a means of repaying the loan.

Due to their nature and the presence of collateral as insurance, the funds available from secured loans are generally higher than with an unsecured loan. The interest rate is usually lower, with secured loans available over a longer period, as a secured loan is perceived to carry a lower risk to the lender.

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