Definition

• Secured credit is credit that is extended if you pledge some type of property, known as collateral.
  
  

Types of Collateral

• The most common types of collateral used for secured credit loans are homes, rental, or business properties and vehicles like cars or motorcycles. Financial institutions will accept other items for collateral as well, including certificates of deposit, stock certificates and life insurance policies that have a cash value.
  
  

Effects

• If you default on or stop paying a loan that has secured credit, the bank has the right to take the collateral that you pledged in the loan contract. If you used a vehicle as collateral, the bank will repossess or take the automobile. If you used your house, the bank can foreclose on your home and other buildings, requiring you to vacate the property.
  
  

Interest

• Because secured loans are less risky than loans that do not have collateral, the interest rates offered by financial institutions are usually lower. This makes your monthly payment smaller.
  
  

Credit

• Secured credit loans are sometimes easier to obtain than loans that do not have any collateral. Although a financial institution will still consider your income and credit history, the lending guidelines are slightly more relaxed for secured credit loans.
  
  

Value

• To serve as collateral, the item that you are pledging for collateral must be of equal or greater value than the requested loan amount. Financial institutions usually may require an appraisal to assess the value for some types of property.