Secured vs. Unsecured Debts

By Social, 20th, April 2016

20 Apr 0
Share

Secured vs. Unsecured Debts

Financial lending (or debt consolidation) falls under two main categories: secured and unsecured debts. Knowing the difference will help you prioritize what is your best next move and how to prioritize financial burdens.

A secured debt is a debt that is tied to a collateral (for example: a mortgage or auto loan). Lenders have a lien on the asset and have the full right to obtain the collateral if a customer falls behind on payments (all proceeds from selling the collateral is used to pay back the debt). Because a loan under a secured debt has less risk for the vendor, this type of loan typically has a lower interest rate for the customer.

An unsecured debt is the exact opposite. It is a debt that is not collateralized by a lien on assets. Examples of unsecured debts are credit card debt, student loans and medical bills. If a customer is behind on payments, their lender does not have the right to take any assets. A lender can, for example, hire a debt collector and a delinquent status will be reflected on your credit report. Even if you are on a tight budget from paying off other debts and bills, it is very important to stay on top of minimum payments with all financial accounts.

Share

Leave a Reply

Your email address will not be published. Required fields are marked *