What is an example of unsecured debt?

What is an example of unsecured debt?

• A. A mortgage on a house
• B. A car loan with a lien
• C. Credit card debt without collateral
• D. A secured personal loan

Answer: (C)

Credit card debt without collateral is classified as unsecured debt because it does not have any specific asset backing it. In the event of default on this type of debt, the creditor does not have the right to seize any particular property to recover the owed amount. This means that creditors must pursue other methods, such as legal action or debt collection, to recover the funds. Unsecured debt generally carries higher interest rates compared to secured debt since lenders face a greater risk without collateral to guarantee repayment. This differentiates it from secured debts such as mortgages, car loans, and secured personal loans, where specific assets are used to secure the loan amount. If borrowers fail to make payments on those secured debts, lenders have the legal right to repossess the property tied to the loan, making them less risky for lenders and typically resulting in lower interest rates.

Credit card debt without collateral is classified as unsecured debt because it does not have any specific asset backing it. In the event of default on this type of debt, the creditor does not have the right to seize any particular property to recover the owed amount. This means that creditors must pursue other methods, such as legal action or debt collection, to recover the funds.

Unsecured debt generally carries higher interest rates compared to secured debt since lenders face a greater risk without collateral to guarantee repayment. This differentiates it from secured debts such as mortgages, car loans, and secured personal loans, where specific assets are used to secure the loan amount. If borrowers fail to make payments on those secured debts, lenders have the legal right to repossess the property tied to the loan, making them less risky for lenders and typically resulting in lower interest rates.