Secured vs Unsecured Debt
Secured loan:
The two basic categories of debt are secured and unsecured debt. If the creditor or loan lender takes the property (that has been placed as pledge) for non payment then it is referred to as secured debt. In other words taking away the tangible property by the creditor for non payment of debt is referred to as secured debt. In short, the creditors have a portion of rights on the mortgage object until the loan debt is completely settled.
For instance secured debts are mostly mortgages like home loan, car loan, etc.
If you are applying home loan, the documents of that home is used as collateral and if your repayments are not proper and on the dot then the home can be taken by the creditor to pay for your home.
Unsecured loan:
If the creditor takes nothing from the debtor for non payment of debt then it is unsecured debt. For instance Credit card is said to be unsecured debt as the creditor takes nothing from the debtor. But there are also some secured credit cards and its withdrawal is based on amount from your deposit.
Unsecured debt requires no collateral and the interest rate will be somewhat high when compared to secured debt. And the main vantage in certain unsecured loan is you can buy whatever thing you want, where as in secured loan such as home loan the home document is placed as collateral so you can only buy or built a home and not anything else. The main drawback of unsecured loan is no guarantee of repayment from the debtor on the dot.
