Collateral
Collateral is an asset a borrower pledges against a loan, and the lender can take and sell that asset if the loan is not repaid. Pledging one usually lowers the rate charged.
Collateral changes the lender's arithmetic rather than the borrower's. If the loan goes bad there is a second route to being repaid, so the loss the lender expects on a default is smaller and the price of the loan drops to match. That is the structural reason a mortgage costs less than a credit card balance, and it turns on the lender's exposure rather than on any judgement about the borrower.
The pledged asset is usually the thing being bought, the house on a mortgage or the car on an auto loan, but it does not have to be. A secured credit card is backed by a cash deposit, a margin account by the securities held in it, and a business line of credit often by receivables or inventory. Borrowing with a pledge is a secured loan; borrowing with none is an unsecured loan.
The mistake is assuming the collateral caps the loss. If the asset sells for less than the balance owed, the shortfall is a deficiency, and it can remain a debt the borrower still owes after the asset is gone. Whether the lender may pursue it depends on the type of loan and, in the United States, on state law. Handing back the keys is not automatically the end of the obligation, and the payment on the secured debt counts toward the borrower's debt-to-income ratio for as long as the loan runs.