Secured Creditor

Written By
Paul Tracy
Updated June 2, 2021

What is a Secured Creditor?

Secured creditor is a lender that provides collateralized debt.

How Does a Secured Creditor Work?

Mortgage lenders are the most common example of secured creditors: They lend you money and keep the house as collateral.

Here's another example: You would like to borrow $100,000 to start a business. Even if you have an excellent credit rating, a bank may be reluctant to lend you the money because it may be left with nothing if you default on the loan. Thus, although banks may attempt the lengthy and expensive process of suing you in that circumstance, the bank may require $100,000 of collateral in order to lend you the money. This collateral might consist of financial instruments, houses, cash, or even objects such as art, jewelry, or other items. You might also pledge your business receivables. When you pledge these assets, you are making the lender a secured creditor.   

If you do in fact default on the loan, the loan agreement gives the lender the right to seize and sell the collateral in order to recover any outstanding balance.

Why Does a Secured Creditor Matter?

Secured creditors often provide lower interest rates than unsecured creditors because they have collateral on their side. They bear less risk as a result. However, the type and amount of security required for a given loan is often a matter of negotiation between the lender and borrower. For instance, a lender might require a borrower to collateralize any assets purchased during the loan period. In some cases, collateral for one obligation can also be collateral for other obligations (this is called cross-collateralization). This often occurs in real estate transactions, where a house collateralizes more than one mortgage.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Secured Creditor.
Be the first to ask a question

If you have a question about Secured Creditor, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Secured Creditor, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Secured Creditor

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms