What is a secured loan? Meaning, examples and what you risk

What it is

The CFPB's glossary describes secured loans as loans in which your property, a thing you own, is used as collateral. It defines collateral as an asset that secures a loan that a lender can take if you don't repay the money you borrow.

The OCC's glossary says the same of collateral: assets offered to secure a loan or other credit. In a mortgage, the collateral is the home. In a car loan, it is the car.

How it differs from an unsecured loan

The CFPB defines an unsecured loan as one that does not use property as collateral, such as most credit cards. With no collateral to take, an unsecured lender takes more risk.

A mix-up is to think that a secured loan is safer. For the lender it is. For you, the cost of falling behind is higher, since what you can lose is the thing itself.

The CFPB's mortgage key terms say the same about a home equity loan: if you cannot pay it back, the lender could foreclose on your home.

For a couple

If you both sign, you are both responsible for it. If one of you signs alone but the collateral is shared, like a car you both drive, talk about what happens to it if payments stop.

A car loan as a secured loan

• Loan: $20,000 to buy a car, with the car as collateral
• Pay as agreed: the lender has no claim on the car after the last payment
• Stop paying: the lender can take the car, as collateral
• A $20,000 credit card balance has no collateral behind it: it is unsecured