What is the difference between unsecured debt and secured debt?
An unsecured debt generally arises out of a contract entered into with a creditor that enables you to obtain goods and services on credit in exchange for your promise to repay the creditor. Credit cards, medical loans and personal loans are the most common types of unsecured debts. If you are delinquent with this type of debt the only recourse the lender has is legal action. A secured debt is a loan where the creditor retains a security interest in real or personal property such as a house or an automobile. If you fall behind on payments with this type of debt the lender has the ability to repossess the property in order to mitigate their damages. If your property is repossessed and sold you remain liable for any deficiency balance that remains after the sale. Certain exceptions apply depending on the nature of the security interest. The laws regarding home mortgages vary from state to state and the lenders rights usually depend on the terms of the mortgage and whether any other lender
An unsecured debt generally arises out of a contract entered into with a creditor that enables you to obtain goods and services on credit in exchange for your promise to repay the creditor. Credit cards, medical loans and personal loans are the most common types of unsecured debts. If you are delinquent with this type of debt the only recourse the lender has is legal action. A secured debt is a loan where the creditor retains a security interest in real or personal property such as a house or an automobile. If you fall behind on payments with this type of debt the lender has the ability to repossess the property in order to mitigate their damages. If your property is repossessed and sold you remain liable for any deficiency balance that remains after the sale. Certain exceptions apply depending on the nature of the security interest.
The creditor of an unsecured debt relies only upon your promise to repay and that of any co-borrowers and/or co-signers you might have. The most common types of unsecured debts are credit cards, department-store cards, medical bills, and personal (signature) loans. The creditor of a secured debt relies upon collateral or security for a secondary source of repayment if you fail to repay. The most common forms of secured loans are home loans, such as first mortgages, 2nd notes and equity lines-of-credit, car loans, boats, and RVs. Once default takes place, the creditor’s recourse is usually to foreclose on a home, or repossess a vehicle. A kind of quasi “secured” loan is a student loan. It is really a “guaranteed” loan, but the guarantor is usually the State or Federal Government. Because the lenders can get guaranteed repayment, they will not negotiate the settlement of student loans.
An unsecured debt is money that you borrow without putting up an asset as collateral. Credit cards, medical loans and personal loans are the most common types of unsecured debts. If you don’t make your payments with this type of debt the only thing the lender can do is try to collect through either convincing you to pay or taking legal action.