What is Unsecured?
In the finance world, aor piece of is unsecured if it does not have .
How Does Unsecured Work?
Let's assume you would like to borrow $100,000 to start a business. Even if you have an excellent credit rating, a bank may be reluctant to lend you the because it may be left with nothing if you default on the . Thus, although banks may attempt the lengthy and expensive process of suing you in that circumstance, the bank may require $100,000 of collateral -- security -- in order to lend you the money. This collateral might consist of financial instruments, houses, cash, or even objects such as art, jewelry or other items. You might pledge your business receivables as well. When you pledge these assets, you are collateralizing the loan.
If you do default on the loan, the loan agreement gives thethe right to seize then sell the collateral in order to recover any outstanding balance.
For individuals,cards are the most common example of unsecured . There is no collateral backing your Visa bill that Visa can seize if you don't pay your bill.
Why Does Unsecured Matter?
If the creditor is a secured creditor. If the creditor has no ability to claim some of your assets when you don't pay (this is often the case with cards), the creditor is unsecured. If you have borrowed from a bank, the bank may ask you for as a way of securing the loan.has claim to some of your assets -- say, a you made, a on your house, the title to your car -- that
An unsecured creditor takes on more risk than a secured creditor because it does not have the ability to seize an collateral up front. Regardless, this lack of security increases the creditor’s risk, which in turn increases the interest rates on unsecured .right away if a borrower fails to repay the . Creditors may of course sue to obtain access to accounts or other assets if the borrower has not paid, but that is more expensive than requiring
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
As of July 1, there are 396 funds trading for less than the per-share value of their portfolio assets....Read More →
Editor's note: All data in this report supplied by the National Weather Service, Weather Underground and National Geographic. John Steinbeck's "The Grapes of Wrath" stands as one...Read More →
Mutual funds are one of the great success stories in the history of financial services. In 1970, just 360 funds existed in the United States, with assets under...Read More →