What is a secured creditor?

Definition and Examples of Secured Creditor

How does a secured creditor work?

Secured creditor vs. unsecured creditor

Definition and Examples of Secured Creditor

A secured creditor typically refers to a financial institution that issues a loan backed by collateral, thus having additional protection if the borrower defaults on the loan. The collateral is the asset or property used to secure the loan. If you fail to pay, the creditor has the legal right to take the collateral as compensation for the debt. Mortgages and auto loans are good examples of secured credit.

For instance, when you obtain a mortgage loan, your home loan is the collateral. If you stop making mortgage payments, the creditor will contact you to try to recover the money owed. If these attempts fail, the creditor can seize your home.

The creditor may sell your home at a public auction in an attempt to recover some of the money lost when you defaulted on the loan.

If you stop paying on your car loan, the same process will occur. Your car will be the collateral, and if you fail to repay the loan, the creditor can repossess your car.

Note: Securing a loan with collateral can give you greater purchasing power and help you obtain better loan rates. However, there will be serious consequences if you default on the loan. In the case of a mortgage, you risk losing your home if you stop making payments.

How does a secured creditor work?

A secured loan is typically voluntary, meaning the borrower has agreed to pledge an asset as collateral for the loan. However, there are certain circumstances where the loan can be involuntary, such as in the case of a tax lien. When the taxing authority places a lien on your home, it establishes a legal claim against it if you fail to pay your tax debts.

If you default on the loan, the secured creditor has options available to recover the lost money. Because you agreed to provide collateral as a condition of the loan, the secured creditor has the right to seize the collateral and sell it at a public auction.

The secured creditor also has more rights in bankruptcy. If you receive a bankruptcy discharge, it eliminates your obligation to repay the debt, but it will not remove the lien against your property. This means the creditor can still foreclose on the property and reclaim it. If the borrower files for Chapter 7 bankruptcy, they can either surrender the collateral or continue making payments on it.

In a Chapter 13 bankruptcy case, the borrower may be able to keep the collateral and restructure their debts. However, the creditor is still entitled to payments on the collateral. Therefore, the only way to keep your home in a Chapter 13 bankruptcy is to reach an agreement and continue making payments on the debt.

Note: Individuals filing for bankruptcy usually choose either Chapter 7 or Chapter 13. Be sure to understand the differences between the two and consider the best option for your situation.

Secured Creditor vs. Unsecured Creditor

Secured Creditor Unsecured Creditor

A secured creditor is a creditor who has a lien on the borrower’s property. An unsecured creditor is a creditor who issues a loan without holding a lien on the borrower’s property.

If the borrower defaults on the loan, the secured creditor can sell the property to recover the lost money. In the case of an unsecured creditor, the creditor must sue the borrower to try to recover the lost money.

Mortgages, home equity loans, and auto loans are examples of secured loans. While credit cards and personal loans are examples of unsecured loans.

Given that a secured creditor is a creditor issuing a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can initiate eviction proceedings on the property and sell it at a public auction. Mortgages, home equity loans, and auto loans are examples of secured loans.

In comparison,

The unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options for recovering the money you owe. Since there is no option to repossess any collateral, the creditor must sue you and obtain a judgment against you.

Considering that a secured creditor is the creditor who issues a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can initiate eviction proceedings on the property and sell it at auction. Mortgages, home equity loans, and auto loans are examples of secured loans.

In comparison, the unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options for recovering the money you owe. Since there is no option to repossess any collateral, the creditor must sue you and obtain a judgment against you.

Considering that a secured creditor is the creditor who issues a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can initiate eviction proceedings on the property and sell it at auction. Mortgages, home equity loans, and auto loans are examples of secured loans.

In comparison, the unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options for recovering the money you owe. Since there is no option to repossess any collateral, the creditor must sue you and obtain a judgment against you.

Considering that a secured creditor is the creditor who issues a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can initiate eviction proceedings on the property and sell it at auction. Mortgages, home equity loans, and auto loans are examples of secured loans.

In comparison, the unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options for recovering the money you owe. Since there is no option to repossess any collateral, the creditor must sue you and obtain a judgment against you.

Considering that a secured creditor is the creditor who issues a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can initiate eviction proceedings on the property and sell it at auction. Mortgages, home equity loans, and auto loans are examples of secured loans.

In comparison, the unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options for recovering the money you owe. Since there is no option to repossess any collateral, the creditor must sue you and obtain a judgment against you.

Considering that a secured creditor is the creditor who issues a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can initiate eviction proceedings on the property and sell it at auction. Mortgages, home equity loans, and auto loans are examples of secured loans.

In comparison,

The unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options to collect the money you owe. Since there is no option to recover any collateral, the creditor must sue you and obtain a judgment against you.

Considering that a secured creditor is the one that issues a loan backed by collateral, if you default on the loan, the creditor can place a lien on your property. If you continue to fail to pay, the creditor can take eviction actions on the property and sell it at auction. Mortgages, home equity loans, and car loans are examples of secured loans.

In comparison, the unsecured creditor issues a loan without any collateral requirements. Credit cards and personal loans are examples of unsecured loans. If you default on the loan, the creditor has fewer options to collect the money you owe. Since there is no option to recover any collateral, the creditor must sue you and obtain a judgment against you.

Source: https://www.thebalancemoney.com/what-is-a-secured-creditor-5218286