What does 'unsecured debt' refer to?

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Study for the FCCLA Consumer Rights Exam. Enhance your knowledge with flashcards and multiple choice questions, each including hints and explanations. Get prepared for your exam!

Multiple Choice

What does 'unsecured debt' refer to?

Explanation:
Unsecured debt refers specifically to debt that is not backed by collateral. This means that lenders do not have a claim on specific assets if the borrower fails to repay the debt. Common examples of unsecured debt include credit card debt and personal loans. Since there is no collateral that the lender can take in case of default, unsecured debt typically carries higher interest rates compared to secured debt, which is backed by assets. This distinction is important because it highlights the risk involved for lenders and the potential consequences for borrowers regarding repayment obligations.

Unsecured debt refers specifically to debt that is not backed by collateral. This means that lenders do not have a claim on specific assets if the borrower fails to repay the debt. Common examples of unsecured debt include credit card debt and personal loans. Since there is no collateral that the lender can take in case of default, unsecured debt typically carries higher interest rates compared to secured debt, which is backed by assets. This distinction is important because it highlights the risk involved for lenders and the potential consequences for borrowers regarding repayment obligations.

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