Unsecured debt is a type of debt that is not backed by collateral, meaning there is no specific asset that a lender can repossess if the borrower fails to repay the loan.
Common examples include:
- credit card debt
- medical bills
- and student loans.
Since there is no collateral involved, unsecured debt is considered riskier for lenders. As a result, these loans often come with higher interest rates compared to secured debt. If a borrower defaults, the lender may pursue legal action or debt collection but cannot claim specific property to recover losses.
Responsible management of unsecured debt is important to maintain good credit and avoid financial difficulties.