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When it comes to debt there are two main types- unsecured
and secured. These two forms then
proceed to break into smaller sections, however for the purpose of this post we
will just focus on secured and unsecured.
Secured
Secured debt is explained in its name. Secured debt is secured by the borrower with an asset. This asset is what is used for collateral in
order to get the money back. A secured
loan has both its positives and negatives for the borrower. Usually, a secured loan will have a lower interest
rate. The main drawback to a secured
loan is that the asset that was put up as collateral could easily be taken if
the money is not paid back.
Some examples of secured debt would be:
- Mortgage loan
- Car loan
- Boat loan
- RV
- Other large loans
Unsecured
Unsecured debt is pretty much the same as secured, except
for the fact of not having collateral.
In an unsecured loan the promise to pay back the money is there, however
there isn’t the security that you have for a secured loan. The good aspects of unsecured debt would be
its convenient and it’s easy to qualify for. With that being said, the
negatives can be quite costly. Some of
the negatives of unsecured debt include high interest rates, and pricy fees.
Some examples of unsecured debt would include:
- Student loan debt
- Small bank loans
- Credit card debt
When it comes to collecting debt, it is a little easier to
collect secured debt than it is unsecured.
Secured loans are less risky than lending under unsecured loan
pretenses. The reason for this is because
the secured debt will have an asset to go after if the borrower doesn’t
pay. This makes secured loans the most
sought after form when lending out money.
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