Browse > Home / Credit Counseling / Unsecured debt vs. secured debt

Unsecured debt vs. secured debt

February 12, 2010

It is not uncommon for people to ask about the difference between unsecured debt versus secured debt.

Unsecured debt is debt that is not guaranteed or “backed” by any collateral. Essentially this means that if you default on an unsecured debt there is nothing that the creditor can take back to recover their costs for non-payment of the loan. Interest rates tend to be higher on unsecured debt because there is no collateral for the creditor to seize. Credit cards fall into the category of unsecured debt. A credit card company cannot seize any of your possessions if you do not pay off the balance. Creditors attempting to collect on a delinquent unsecured debt typically turn the account over to a collection agency.

Secured debt is debt that is backed by some type of collateral such as assets or revenue from the borrower. Mortgages and vehicle loans are two examples of secured debts. If the borrow allows the loan to become delinquent, the lender can foreclose on a home or repossess the vehicle for non-payment. Because there are assets the lender can use to recoup their loss in the event of a loan default, interest rates are generally lower on secured loans.

Written by Lauralynn Schueckler · Filed Under Credit Counseling 

Comments

Terms of Service
1. All comments are subject to review by Advantage Credit Counseling Service prior to their publication on this site. Advantage CCS reserves the right to decline publication to any post it deems in violation of the Terms of Service.
2. No potentially libelous or damaging statements will be posted. This includes negative and / or unsubstantiated allegations against Advantage CCS and its competitors.
3. No comments including obscene, explicit or racist language will be posted.
4. Comments containing personal attacks, insults or threats will not be posted.
5. Comments not related to matters of personal finance, budgeting, credit counseling, housing counseling, bankruptcy and other related financial issues will not be posted.
6. Anyone who posts using another person’s identity will be barred from posting in the future.