Whether you considering bankruptcy or not, it’s important to know the difference between different types of debt.
The kind of debt you have can affect your credit score, how much money you can borrow, and the interest rates of those loans.
This post will describe the difference between secured and unsecured debt? Here is what you should know:
•· Secured debt uses some asset or collateral as security, such as a car loan or a home mortgage loan.
•· If you default on a loan that is secured, you may have the asset taken from you (your car could be repossessed or your home foreclosed on).
•· With secured debt, you can often borrow more money and get better interest rates, because lenders know they will have some form of collateral if payment issues arise for the debtor.
•· You should pay your secured debt first. This is because some asset of yours may be at risk if you do not.
•· Unsecured debt is credit that does not require collateral. Credit cards are a perfect example.
•· If you fail to make payments, lenders cannot seize your home or other assets.
They can, however, try to force you to repay your debt through legal means, such as suing you for the money you owe.
•· Lenders usually charge higher interest rates, or limit the amount that you can borrow. This is because they are taking a greater risk in lending you money without the security of an asset.
For these reasons, credit that is secured is often seen as being more financially advantageous than credit that is unsecured. We will discuss the practical implications of this in a future post.
•· Our firm represents clients who are in need of debt relief. Follow the link to learn more about our consumer bankruptcy practice.