Which term describes a loan backed by collateral such as your car or home, where the lender can seize the collateral if you fail to repay?

• A. Secure credit
• B. Credit limit
• C. Unpaid account balance
• D. Revolving credit

Answer: (A)

Secured credit describes a loan backed by collateral, such as your car or home. Because the lender has a claim on an asset if you don’t repay, the risk is lower for them, which often means lower interest rates and sometimes larger loan amounts for you. If you miss payments, the lender can seize the collateral to recover what you owe—foreclosure on a home or repossession on a car. This differs from unsecured loans, which have no collateral and typically carry higher interest rates. The other terms refer to different concepts: a credit limit is just the maximum you can borrow on a line of credit, an unpaid account balance is what you currently owe, and revolving credit describes a line of credit you can reuse after paying down, usually not secured by collateral.