Unsecured Debt

AAA

DEFINITION of 'Unsecured Debt'

A loan not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement. It presents a high risk for lenders since they may have to sue to get the money they're owed if the borrower doesn't repay the full amount owed. As a result of this high risk, unsecured debt tends to come with a high interest rate. Unsecured debt can be wiped out by bankruptcy, but taking this dramatic step makes it more difficult to obtain financing for the next seven to 10 years.

INVESTOPEDIA EXPLAINS 'Unsecured Debt'

Secured debt, on the other hand, is backed by an asset, also known as collateral. Under the terms of a secured loan, the lender can seize the collateral used to guarantee the loan if the borrower defaults. Examples of secured debt include mortgages, which are secured by houses, and auto loans, which are secured by cars. Because the borrower has more to lose by defaulting on a secured loan and the lender has something to gain, this type of loan will have a lower interest rate than an unsecured loan.

RELATED TERMS
  1. Trust Certificate

    A bond or debt investment, usually in a public corporation, that ...
  2. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  3. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  6. Debtor

    A company or individual who owes money. If the debt is in the ...
RELATED FAQS
  1. What is the difference between secured and unsecured debt?

    The difference between secured and unsecured debt is the presence or absence of collateral backing. Secured Debt For a debt ... Read Full Answer >>
  2. How long do typical debt management plans take to pay off debt?

    Debt management plans are professionally budgeted and guided payment plans designed to help consumers repay debts. In some ... Read Full Answer >>
  3. What debts don't have a statute of limitations applied to them?

    The statute of limitations on a debt refers to the legal time frame in which creditors may pursue a debt through the court ... Read Full Answer >>
  4. In a corporate liquidation, why are unpaid taxes and wages paid before general creditors ...

    The Bankruptcy Code, section 507, states that when a corporation is liquidated, creditors are paid in a particular order: ... Read Full Answer >>
  5. How can I use quantitative analysis to evaluate investment decisions if I don't have ...

    While there are a few legitimate companies advertising that they can consolidate credit card debt, most are illegitimate ... Read Full Answer >>
  6. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
Related Articles
  1. Budgeting

    5 Ways To Control Emotional Spending

    Follow these five simple steps to keep your spending under control.
  2. Budgeting

    Negotiating A Debt Settlement

    If you're being harassed by a debt-collection agency, you can take charge. Find out how.
  3. Budgeting

    5 Signs That You're Living Beyond Your Means

    Learn what to watch for before you find yourself drowning in debt or filing for bankruptcy.
  4. Credit & Loans

    A Guide To Debt Settlement

    Find out how you can negotiate your way to a lower debt load by paying up front.
  5. Credit & Loans

    A Lifeline For Those Drowning In Debt

    Don't wait to be saved, find out where the lifesaving devices are and hang on tight!
  6. Retirement

    What You Need To Know About Bankruptcy

    Don't choose this last-resort option until you learn how it will affect your future.
  7. Options & Futures

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  8. Credit & Loans

    Consolidating Debt: What If You Have Bad Credit?

    Getting a debt consolidation loan is more difficult when you have bad credit. But it could still help put you on the road to improving your credit score.
  9. Savings

    Why Do Credit Cards Expire?

    Credit cards expire for more reasons than you could imagine – including, so you don't forget you have the card.
  10. Taxes

    The First Thing You Should Do With Your Tax Refund

    Nobody likes to pay taxes, but everyone loves to get a tax refund. When the check arrives in the mail, it's hard to resist spending it on some indulgence.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center