A loan is secured by pledging an asset such as a car or home as collateral. The bank or finance company holds the deed or title until the loan has been paid in full. At that point, the title or deed is transferred to the owner/borrower. Stocks and financial asset can also be pledged as collateral.

The interest rate on a secured loan is almost always lower than the rate on an unsecured loan, such as a credit card or education loan.