What is unsecured debt?

Unsecured debt is a loan or credit that doesn’t have any collateral attached to it. This means if you don’t keep up with payments, the lender can’t just grab your assets (like your car or house) to make up for it. Instead, they’d have to go through other steps like calling you, sending your debt to a collection agency, or even taking legal action to get their money back.

Here are a few common examples of unsecured debt:

• Credit cards: Probably the most familiar form of unsecured debt. When you use a credit card, you’re borrowing money up to a certain limit to buy things or even get cash advances.
• Personal loans: These loans give you the freedom to spend the money on pretty much anything, from paying off other debts to covering wedding costs, without needing to put up any property as security.
• Student loans: The money you borrow for school is also unsecured, relying on your promise to pay it back after you graduate.

Because there’s more risk for the lender (since they can’t claim any property if you fall behind on payments), unsecured debts often have higher interest rates than secured debts, where the loan is backed by something tangible.