Unsecured Debt

Credit cards, most personal loans, many student loans and medical bills are typical examples of unsecured debt. If the borrower does not repay, the lender cannot simply take a specific asset, as it could with a car or a house.

Because this makes lending riskier, unsecured debt usually carries higher interest rates than secured debt. Lenders also look more closely at income and credit history before approving it, and borrowers with weak credit may be offered smaller amounts or turned down.

That does not mean there are no consequences for not paying. Lenders can add fees and interest, report missed payments to credit bureaus, pass the debt to collection agencies and, in many places, take legal action to recover the money, which can eventually affect wages or other assets.

Unsecured debt is often the most expensive borrowing people have, especially credit card debt. That is why many debt repayment plans focus on paying it down first.