Generally, a “secured” loan is backed (or secured) by an asset. Hence, the borrower pledges an asset (i.e. in our example a property), as collateral in favour of the loan. In the event that the borrower defaults, the creditor takes possession of the asset and sells it to recover the amount originally lent to the borrower (via a mortgage repossession procedure to get the keys of the home).
Besides real estate, there are other assets that can be used as collateral. Most common are hard assets such as airplanes, cars, machineries, equipment, inventories or commodities. Liquid financial assets used are stocks, bonds or invoice receivables.
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