What is Unsecured Debt?
Unsecured debt is defined as any debt where there is no specific collateral or security held by the lender against the debt.
This is the type of debt that most people have in their regular consumer debt accounts.
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Regular credit cards, lines of credit, student loans and installment loans would all be classified as unsecured debt.
The opposite of an unsecured debt is secured debt.
A secured debt is a loan where the lender requires something to be given to them as security in return for the loan.
For instance, you may have to deposit a certain amount of money in a secured account to be held in case you default on the debt.
In other cases, a lien may be placed on an asset that you own in order to hold it as collateral in the case of default. Unsecured debt does not have these restrictions.
Typically, unsecured debt is offered to clients who have both proof of income and a clean credit record.
Although people with blemished credit may be able to access certain types of unsecured debt, they will often find when doing so that they’re faced with higher fees and interest rates.
Sometimes, by opting instead for secured debt, a person with poor credit can get a more favorable rate.
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