Secured Note


DEFINITION of 'Secured Note'

A type of loan that is backed by the borrower's assets. If a borrower defaults on a secured note, the assets it has pledged as collateral can be sold to repay the note. This feature decreases the risk associated with secured notes, so lenders earn a lower interest rate than they would earn with riskier issues such as unsecured notes. With an unsecured note, the borrower does not pledge any assets as collateral, so it must pay the lender a higher interest rate in order to compensate them for the increased risk.

BREAKING DOWN 'Secured Note'

If you have a mortgage or an automobile loan, you are the holder of a secured note. In the case of a mortgage, you hold a secured note with your home pledged as collateral. If you fail to make your mortgage payments, the lender can seize your home. In the case of an auto loan, the lender can repossess your vehicle if you stop making your loan payments.

In business, a secured note might be issued by corporation that provides private debt and equity financing to a company looking to expand its business. If the business expansion is unsuccessful, the lender will take the assets that the company pledged to secure the loan, which might include real estate and equipment.

  1. Unsecured Note

    A loan that is not secured by the issuer's assets. Unsecured ...
  2. Bullet Loan

    Any loan that requires a balloon payment at the end of the term ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Soft Loan

    A loan with no interest or a below-market rate of interest, or ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
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