A secured transaction is a legal agreement in which a borrower pledges an asset, known as collateral, to a lender as security for a loan. If the borrower fails to repay the loan, the lender has the right to take possession of the collateral to recover their losses. This process helps reduce the risk for lenders and can lead to better loan terms for borrowers. In many jurisdictions, secured transactions are governed by laws such as the Uniform Commercial Code (UCC) in the United States. These laws outline the rights and responsibilities of both parties, ensuring that the process is fair and transparent. Common types of collateral include vehicles, real estate, and equipment.