What Is The Difference Between Secured and Unsecured Debt?

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What Is The Difference Between Secured and Unsecured Debt?

When taking out a finance agreement, there is often a choice as to whether you would like the debt to be secured or unsecured. Read on to find out what the difference is.

 

Secured Debt

 

A secured debt can fall into two main categories:

 

The first involves the borrower  putting forward an asset of theirs, usually their house or property, as collateral for the loan. This means that should the borrower no longer be able to pay the loan, the lender can ‘possess’ the property and use its sale as a way of paying the debt. 

 

The second is often referred to as Hire Purchase, whereby the consumer takes out a loan to purchase goods e.g. a car. If there borrower can no longer pay the loan, then it is the item they purchased that can be ‘repossessed’.

 

Unsecured Debt

 

Unsecured debt refers to any borrowing where the consumer hasn’t been required to add any assets as collateral. This means that should the borrower not be able to continue paying the loan, the lender would need to pursue the debt.

 

To find out more about the different types of debt, take a look at our Secured Debt page and our Unsecured Debt page.


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