What is the difference between secured and unsecured debt?

The difference between secured and unsecured debt boils down to collateral. Secured debt requires collateral, or something of value given from the borrower to the lender that the lender may take possession of if the borrower is unable to make payments. Unsecured debt does not require collateral from the borrower and is based on the borrower’s creditworthiness and ability to repay the debt. Secured debt is typically used for major purchases and investments that require a large amount of money, such as a mortgage, auto loan, or business loan. In Washington, you can use your property or assets as collateral for a loan. In such a case, the lender can take possession of the property or asset if you fail to make payments on the loan. Unsecured debt is typically used for smaller purchases or when a borrower does not have the necessary collateral to secure the loan. This includes credit cards, student loans, and personal loans. This type of debt is based entirely on the borrower’s creditworthiness and ability to make payments. If a lender sees the borrower as a “high risk,” the borrower may be given a lower limit on their debt or not be approved for a loan at all. Both secured and unsecured debt carry risks and benefits. The premise of secured debt is that if the borrower is unable to make payments, the lender can take possession of the collateral to recoup some of the money loaned. Conversely, unsecured debt has little risk for the lender, but if the borrower cannot make payments, the lender may take legal action to collect on the debt.

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What is the difference between secured and unsecured debt?

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