What is a secured party?

A secured creditor is a natural or legal person whose collection rights are backed by an additional security, by a mortgage, a seizable asset, or another. In this way, in the event of non-payment, the creditor can execute the guarantee and ensure that the money granted is reimbursed. Although in certain cases, the protection is not complete, that is, sometimes the entire loan is not recovered, if not only a part.

It is necessary to remember that a creditor is any individual or company with the power to demand the fulfillment of an obligation. Also, it must be specified that the guarantee is, in general, a mechanism to protect the rights of a lender. So having the backing of a good or a third party, which can be sold to obtain liquidity, it is possible to ensure compensation or the maximum reduction of eventual damages caused by the debtor.

Types of secured party

On the other hand, we can say that there are two kinds of secured creditor:

  • With full guarantee: this aspect refers to when the debt that the creditor must collect is fully covered. This happens most of the time with mortgage loans, where the guarantee is the home itself.
  • With partial guarantee: this happens when only a part of the fulfillment of a part of the obligation of the debtor.

These are the two types of secured party that we can find. Furthermore, there are key aspects to this term. As for example, the presence of these in operations of high importance, such as mortgage loans. In this way, financial institutions reduce the risk of their activity.

We must know that if the loans have a guarantee, there is less probability of default. Which leads to the interest rate be less.

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