Secured Debt Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Secured Debt, written in plain English, along with examples of how it is used.

What is Secured Debt?

A debt that entitles the lender to confiscate a specified piece of property (the collateral) if the debtor cannot repay the secured debt.

History and Meaning of Secured Debt

Secured debt is a term used in finance and law to describe money that has been borrowed that is secured against an asset. This means that should the borrower default on the loan, the lender has a right to claim ownership of that asset in order to recoup some or all of the loaned amount. This asset might be a car, a house, stock, or any other valuable property that is deemed to be of sufficient value to cover the debt.

The concept of secured debt is very old and has been used in many forms of trading and commerce throughout history. In modern times, it is most commonly used in relation to mortgages, car loans, and similar forms of consumer credit. Banks and other lending institutions often prefer to lend money in this way, as it reduces the risk of loss if the borrower defaults on the loan.

Examples of Secured Debt

Here are a few examples to help illustrate the use of this term:

  1. A person takes out a car loan from their bank. The bank requires that the loan is secured against the value of the car, which means that if the person defaults on the loan, the bank has the right to take possession of the car and sell it to recoup the outstanding debt.

  2. A property developer takes out a mortgage on a house they are renovating, with the aim of selling it once the renovations are complete. The mortgage is secured against the value of the house, which means that if the developer defaults on the loan, the lender has the right to foreclose on the property and sell it to recoup the outstanding debt.

  3. A business issues corporate bonds that are secured against the value of its assets. This gives investors the confidence to lend money to the business, as they know that they will have some security in the event that the business defaults on the loans.

Legal Terms Similar to Secured Debt

Some related legal terms that are similar to secured debt include:

  1. Collateral - This refers to the asset that is used to secure the debt.

  2. Lien - A lien is a legal right granted to a creditor to take possession of a debtor's property if the debt is not repaid.

  3. Debenture - A debenture is a type of bond that is secured against the assets of the issuing company.