Secured and Unsecured Debt

Secured debt is a type of loan backed by collateral, meaning the lender can claim the asset if the borrower fails to repay. Common examples include mortgages and auto loans, where the house or car serves as security. Unsecured debt, on the other hand, does not involve collateral. This means higher risk for lenders, often resulting in higher interest rates. Credit cards and personal loans are typical examples. If a borrower defaults on unsecured debt, the lender cannot take specific assets but may pursue other collection methods. Understanding these distinctions helps manage financial obligations effectively.