Financing Strategies - Debt (Long-Term, Short-Term, Secured and Unsecured)

Long-term vs. short-term debt

  1. Long-term debt -Loans and financial obligations lasting more than one year. Examples include home mortgages and student loans. Also known as noncurrent liabilities.
  2. Short-term debt - Debt due in one year or less. Also known as current liabilities.


Secured vs. unsecured debt

  1. Secured debt - Debt backed or secured by collateral to reduce the risk associated with lending. An example would be a mortgage. Your house is considered collateral towards the debt. If you default on repayment, the bank seizes your house, sells it and uses the proceeds to pay back the debt. Assets backing debt or a debt instrument are considered security, which means they can be claimed by the lender if default occurs.
  2. Unsecured debt - A loan not secured by an underlying asset or collateral. Unsecured debt is the opposite of secured debt. Unsecured debt carries more risk for the lender, which in turn makes the loan more expensive. The more additional risk that a lender must take on, the higher the rate of interest a borrower must pay, making unsecured loans subject to higher rates.
Buy Vs. Lease/Rent


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RELATED TERMS
  1. Secured Debt

    Debt backed or secured by collateral to reduce the risk associated ...
  2. Unsecured Debt

    A loan not backed by an underlying asset. Unsecured debt includes ...
  3. Junior Debt

    Junior debt is debt that is either unsecured or has a lower priority ...
  4. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  5. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  6. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
RELATED FAQS
  1. What is the difference between secured and unsecured debt?

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  2. What are the main categories of debt?

    Learn about the different types of debt available for consumers including secured debt, unsecured debt, revolving debt and ... Read Answer >>
  3. What is the difference between secured and unsecured debts?

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  4. How can I consolidate my unsecured debt?

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  5. What are some examples of debts that I can consolidate?

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  6. Are secured personal loans better than unsecured loans?

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