An Asset Backed Loan refers to a type of financing where the borrower secures the loan by offering an asset as collateral. This asset could be real estate, machinery, vehicles, or any other tangible assets that hold value. The idea behind an asset-backed loan is that it reduces the risk for the lender since they have a tangible asset to claim in case the borrower defaults on the loan. This security allows lenders to offer lower interest rates compared to unsecured loans, making it an attractive option for borrowers who have assets but might not qualify for traditional bank loans due to poor credit or other reasons.

In the context of India, these loans are offered by various financial institutions including banks, Non-Banking Financial Companies (NBFCs), and other lending institutions. The process involves the valuation of the asset by the lender to determine the loan amount that can be sanctioned. Typically, the loan amount is a percentage of the asset’s market value, ensuring a buffer for the lender in case the asset needs to be sold to recover the loan amount.