Which of the following describes a loan backed by collateral?

A loan backed by collateral is referred to as a secured loan. This type of loan involves an aspect where the borrower offers an asset, such as a home or vehicle, as collateral to the lender. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recoup their losses. This arrangement typically allows secured loans to have lower interest rates compared to unsecured loans because the presence of collateral reduces the risk for the lender.

In contrast, unsecured loans do not require any collateral; they are based solely on the borrower's creditworthiness and promise to repay. This higher risk to lenders usually results in higher interest rates for unsecured loans. A line of credit is a flexible borrowing option that may be secured or unsecured depending on the terms. Personal loans can also be either secured or unsecured, but without specifying that they are secured, they cannot provide the same level of assurance to lenders as secured loans do. Therefore, a secured loan is the most accurate description of a loan backed by collateral.