What is the difference between secured and unsecured debt?

The difference between secured and unsecured debt refers to the form that the debt takes. Secured debt is when a borrower gives a lender collateral in exchange for a loan. This means that the borrower agrees to put something of value, such as a home or car, on the line to guarantee the loan. If the borrower does not repay the loan, then the lender can seize the collateral and use it to satisfy the debt. Unsecured debt does not involve any collateral. Instead, the loan is based upon promise of future payment. This is often the case when borrowing from a credit card company because the cardholder does not need to offer collateral in exchange for the loan. The lender is relying on the borrower’s creditworthiness to ensure that the debt will be repaid. In Massachusetts, debtors may choose either secured or unsecured forms of debt. The form that is chosen will be based upon the borrower’s unique situation and the lenders’ preferences. Unsecured debt may be more attractive to borrowers because no collateral is required, but it may also mean higher interest rates.

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What is the difference between secured and unsecured debt?

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