What is Unsecured Debt?
There are many different types of debt that are available, and the difference mainly relates to the agreement that has been made as the basis for the debt.
Many lenders will ask that borrowers provide some property or asset as collateral for a loan. Typically, people will use a house or perhaps a car for this, although some lenders will accept other types of property as well. Although these loans often offer the better rates of interest etc, the natural disadvantage is that if the borrower fails to make their payments, the property they’ve used as security will be put at risk.
Unsecured debt then, is borrowing that has not been given on the basis of property used as collateral. The natural advantage here is therefore that your property is not necessarily at risk if you fail to make your payments. In many cases, unsecured loans will involve higher rates of interest as the risk to the lender is seen as higher.
Although unsecured debt does not directly put your property at risk, this does not mean that there’s no comeback for creditors that you have not paid your bills to. If you fail to make your payments to a lender for unsecured debt, there are many things they can do to pursue you for the payment, none of which are desirable from the point of view of the borrower.
Many lenders choose to use the services of Debt Collection companies, who are often extremely difficult to deal with. Creditors can also choose to pursue your debt through the courts, which can have a number of implications for you, including taking control of your assets in extreme cases.
Having debt that isn’t secured does not mean that things are easy if you fail to keep up with the payments. In reality, it just means that the lender goes through a different range of processes to obtain the funds that you owe them.
Whether debt is secured or unsecured affects the terms that you get for the loan, and what the lender does if you don’t pay it back as agreed.