Secured Note

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Unsecured Note

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

    Property or other assets that a borrower offers a lender to secure ...
  3. Bullet Loan

    Any loan that requires a balloon payment at the end of the term ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Soft Loan

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

    A loan that is issued and supported only by the borrower's creditworthiness, ...
RELATED FAQS
  1. What do people mean when they say debt is a relatively cheaper form of finance than ...

    In this case, the "cost" being referred to is the measurable cost of obtaining capital. With debt, this is the interest expense ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  2. Insurance

    Behind The Scenes Of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  3. Insurance

    Investing In Securitized Products

    Securitized assets are customizable and have a wide range of yields, making them an attractive asset class.
  4. Options & Futures

    Home-Equity Loans: The Costs

    Learn the factors to consider when comparing the different programs offered by various lenders.
  5. Options & Futures

    Car Title Loans: Good Option For Fast Cash?

    These loans provide fast cash, but they could leave you deeper in debt - and without a car.
  6. Economics

    What is Earnest Money?

    An earnest money deposit shows the seller that a buyer is serious about purchasing a property.
  7. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  8. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  9. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  10. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center