Unsecured Debt

Definition

Unsecured debt is a loan that is not backed by an underlying asset. It includes most types of consumer debt such as credit cards, medical bills, and personal loans. Because it's not backed by collateral, it represents a higher risk to lenders, often resulting in higher interest rates.

Example

Credit card debt is a common form of unsecured debt. If you fail to pay your credit card bill, the card issuer cannot seize a specific asset like your car or house, but they can take legal action and damage your credit.