What is secured debt?

Secured debt refers to borrowings that are backed by collateral. This means that in the event the borrower fails to meet the repayment obligations, the lender has the right to seize the collateral to recover the outstanding debt. Common examples of secured debt include mortgages and car loans, where the property or vehicle serves as the collateral. This arrangement typically allows borrowers to obtain lower interest rates compared to unsecured debt, as the lender has a claim on the collateral, reducing their risk.

In contrast, the other options describe different forms of debt or financing that do not accurately represent secured debt. For instance, loans that do not require repayment cannot be classified as debt in a traditional sense, while debt based solely on the borrower's credit score refers to unsecured debt that is not backed by collateral. Unsecured loans with high-interest rates also fall outside the definition of secured debt as they carry higher risk for lenders without any collateral backing. Thus, the correct definition of secured debt is precisely reflected in the choice describing borrowings backed by collateral.