What is Unsecured Debt?
How Does Unsecured Debt Work?
If you borrow money from XYZ Bank, XYZ Bank becomes your creditor. Utility companies, health clubs, phone companies and 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 debt to the creditor is unsecured. If you have borrowed money from a bank, the bank may ask you for as a way of securing the loan.