A commonly asked question in the debt settlement industry is, "What is the difference between secure debt and unsecured debt?" The answer is simple!
Secured debt can be defined as any debt attached to property or collateral. Items that can be included as secured debt include Auto Loans, Debts at Law Offices, Home/Real Estate Loans, IRS Tax Debts, and Student Loans.
Secured debt can offer lower interest rates. Secured debt might also cause borrowers to learn how to budget rather quickly as to not loose the attached property or collateral. A downside to secured debt however, might occur when the lender knows they could benefit from the monetary relationships they develop with borrowers. Thus, the lender will allow the borrower to negotiate a payback rate and take out more cash upfront.
Unsecured debt can be defined as any debt not attached to property or collateral. Items that can be included as unsecured debt include Auto Repossessions, Collection Accounts, Commercial Debts, Credit Cards, Judgments, Medical Bills, Personal Lines of Credit, Retail Store Cards, and Unsecured Loans.
Unsecured debt can be a bit more tricky than secured debt. Unsecured debt occurs when a lender loans the borrower money without having the security of attached property or collateral. This type of debt presents a higher risk for lenders which therefore presents a more expensive loan for borrowers. In addition, the more risk a lender takes on will increase the interest rate a borrower must pay back on top of the principle.
Thus, unsecured debts become destined to higher rates than do secured debts. Due to the attachment of property and collateral, debt can vary between secured and unsecured. Secured debt presents more safety to the lender, but unsecured debt presents more safety to the borrower because they are not placing any risk on any attached possessions.
