When a person wants to borrow money against some actual property it is called a secured loan. The property may be anything that both the lender and the borrower agree has value enough to cover the debt by its sale if the borrower fails to repay the loan as contracted. The most common form of secured loan is an automobile loan, followed by a mortgage.
An automobile loan has as its property securing the loan a vehicle which may be repossessed by the lender if the borrower goes into default on his or her payments. The most usual contract for an automobile loan states that the repossessed vehicle will be sold and whatever its sale gains will be placed against the outstanding debt and any remaining debt will be paid by the defaulting borrower. The debt is not cleared by the sale of the vehicle. This is similar to the way most mortgages work.
Another type of secured loan is one in which an object of value stands for the loan as collateral. A diamond may be used for example as collateral for a loan. In this type of secured loan the sale of the object stands for the full repayment of the loan if it has to be sold. Once the lender sells the item the loan is marked paid in full. This is clearly spelled out in the contract that is signed at the time of the loan. Most often the object that is standing as collateral for the loan is retained in the possession of the borrower to be collected in case of default, though this is not always the case. A pawn broker for example keeps the object in his or her possession from the time the loan is made until such time as it is repaid, only selling the item if the loan is in default for lack of payment.
A secured loan is a good way for a person who has something of value to keep ownership of the item while obtaining monies he or she needs for his or her own purposes.
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