Unsecured Creditor

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DEFINITION

An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because it will have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor.

INVESTOPEDIA EXPLAINS

It's uncommon for individuals to be able to borrow money without collateral. For example, when you take out a mortgage, a bank will always hold your house as collateral for the loan in case you default. One exception is large corporations, which often issue commercial paper that is unsecured.


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