Definition
Debt backed by collateral, like a house or car, which the lender can claim if you fail to repay the loan.
What to consider
- Understand how your collateral affects your borrowing power.
- Review the interest rate and repayment terms carefully.
- Keep a close eye on your payment schedule.
Real world scenarios
- Anthony’s mortgage is considered secured debt because the house itself is collateral. If he defaults, the lender can reclaim the property.
- With her car financing, Alicia signs a secured debt contract using the vehicle as collateral. She keeps the car as long as payments remain current.
- Secured debts typically offer lower rates than unsecured ones. Bria benefits from a more affordable loan since her home equity backs it.
Related terms
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