Secured Loan Definition by RBI

A secured loan is a type of loan where the borrower pledges an asset as collateral to the lender. This collateral serves as security for the lender in case the borrower defaults on the loan. The asset can be anything of value such as real estate, vehicles, or financial instruments. The Reserve Bank of India (RBI) defines secured loans as loans backed by collateral to mitigate the risk of default. The nature of collateral ensures that lenders have a tangible asset to recover their funds if the borrower fails to repay the loan. The RBI’s regulations on secured loans aim to ensure transparency, protect the interests of lenders, and provide borrowers with access to credit under favorable terms. In this context, the RBI outlines various aspects including the valuation of collateral, the process of repossession in case of default, and the rights and obligations of both parties involved. Secured loans are typically offered at lower interest rates compared to unsecured loans due to the reduced risk for lenders. The RBI's guidelines are designed to maintain financial stability and promote responsible lending practices.