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What Are Secured Transactions?

Secured transactions are dealings that involve a loan or credit. In this type of transaction, the lender acquires a security interest in the collateral presented by the borrower. The lender here referred to as the secured party possesses a right to own the property should the property used as collateral undergoes foreclosure and the borrower fails to pay his dues.

A secured transaction usually involves a security agreement, also known as a contract. An example would be the purchase of a car with the person buying it opting to use financing by way of a car loan. The lender which the borrower chooses then pays the car with the buyer in agreement to repay the loan with interest.

In this situation, the car becomes the collateral of the borrower with the lender retaining the title as security in the event the buyer fails to make his monthly payments moving forward. If the borrower defaults from his payments, the creditor can repossess the vehicle and resell it at an auction. This step is a standard procedure carried out by lenders to recover their losses.

Assuming that the car loan transaction was unsecured, it means the buyer is in possession of the title and the vehicle itself. The lender, in this case, is only holding to the written agreement with the borrower promising to repay the loan according to the terms and conditions contained in the contract. Should the borrower, however, defaults on his payments, the lender can take legal action and file a lawsuit against the borrower as it does not have the right to possess the property involved.

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