What is an Unsecured Creditor?
An unsecured creditor is aor any entity to which a company or individual owes for services provided. That , however, does not have any from the borrower.
How Does an Unsecured Creditor Work?
If you borrow credit card issuers can all be creditors if you have contracts with them or if they have performed services for which you have not yet paid.
If the creditor has claim to some of your assets -- say, a deposit you made, a lien on your house, the title to your car -- that 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 credit 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.
Why Does an Unsecured Creditor Matter?
An unsecured creditor takes on more risk than a secured asset right away if a borrower fails to repay the debt. 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 up front.
Regardless, this lack of security increases the creditor’s risk, which in turn increases the interest rates on unsecured loans.