What is a secured debt?

A secured debt is a type of borrowing that is backed by collateral, which means that the borrower offers an asset as security for the loan. This arrangement reduces the lender's risk since they have the right to claim the collateral if the borrower fails to repay the debt. For example, if someone takes out a mortgage to buy a home, the home itself serves as collateral; if the borrower defaults on the loan, the lender can foreclose on the property.

The presence of collateral not only protects the lender but also often results in lower interest rates or better loan terms for the borrower, as the lender has a means of recouping their investment. This makes secured debt an important concept in lending practices, as both parties are able to mitigate risk through this arrangement.