A secured loan is a kind of loan where a physical asset is pledged by the borrower to the creditor. This pledged asset is commonly known as collateral. Promising a possession assures the loan and ensures creditors their compensation in case the borrowers fail to pay the money lent. The collateral being pledged also usually have the same value as the loan being extended. If the loan is considered a high cost loan, the collateral pledged should be valued almost the same as the value of the loan. Secured loans is the most favored and most popular loaning process amongst creditors given that it assures them of a definite payment.

The limited power over a pledged property provides a sense of security for creditors. Collateral brings a sense of confidence for creditors in providing loans in accordance to setting the interest rate and loan limit.

To the benefit of the borrower, a secured loan allows him to acquire a flexible, extended and relaxed term. In some cases, borrowers who are still obliged under a current secured loan are allowed to get another loan. For the creditor, he would still get his money back in case the borrower fails to pay a certain amount of the loan.

In any secured loan venture, there is also a risk that comes with it. In the event of default of payment, the borrower's pledged asset may reduce in value and the creditor may have to settle for a lower value by the time he has to sell it. The risk it poses to the borrower is the potential loss of his home.

One of the most popular secured loans known all over the world are mortgage loans. Benefits and risks go both ways for the creditor and borrower. The purpose of getting the mortgage loan is to pay for a real estate property that the borrower will also use as his collateral. The home of the borrower may be foreclosed if the borrower fails to pay an accumulated amount for a certain period. To the lender's side, it is quite a gamble for him/her to grant loans especially since there's no sure way to tell if the borrower will be able to complete payment or if the property will be worth the value of the loan if it is foreclosed. Foreclosure does not necessarily give back the same value when a repossessed home is sold. Chances are the selling price of the home may be lower than its original selling price paid for by the loan.

Furthermore, for a secured loan to take place, the property being pledged by the borrower should be in his own name. A credit check is usually conducted by the creditor to check whether the person who is trying to take out a loan from him not only has the fiscal capacity to make payments but also confirm that he is the owner of the property being used as collateral. A secured loan is put into motion in the form of a written contract after the credit check is completed and approved. Terms and conditions are contained therein.