Difference Between Secured and Unsecured Debts

A creditor who does not hold security (such as a mortgage or vehicles) for money owed. Your mortgage loan is secured by your home. Similarly, your auto loan is secured by your vehicle.

A lender has the right to take the asset if you fall behind on your payments. If the lender has to take your asset because of you’ve become offending, the asset will be sold. If the selling price for the asset doesn’t completely cover the debt, the lender may pursue you for the difference.

     With unsecured debts, lenders don’t have rights to any collateral for the debt. If you fall behind on your payments, they don’t have the right to take any of your assets. However, the lender may take other actions to get you to pay. For example, they will hire a debt collector to coax you to pay the debt. If that doesn’t work, the lender may sue you and ask the court to garnish your wages, take an asset, or put a lien on another your assets until you’ve paid your debt.

Credit card debt is the most widely-held unsecured debt. Other unsecured debts include student loans, medical bills, and court-ordered child support.

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