What is “Unsecured Debt” meaning?

Unsecured debt is a financial obligation that does not require collateral for approval. Lenders rely on the borrower’s creditworthiness to assess risk and determine the terms of the loan. If the borrower defaults, the lender cannot claim any assets as payment. Examples of unsecured debt include credit cards, personal loans, and medical bills.

Example

"Due to her high credit score, the lender approved her for an unsecured debt loan without asking for any collateral."

How is “Unsecured Debt” used in business?

Unsecured debt is often used by businesses to finance operations or expansion without needing to pledge assets. This type of debt is typically associated with higher interest rates due to the lack of collateral, but it provides flexibility for the business.

Pro Tip

Carefully manage unsecured debt to avoid high interest rates and potential impacts on cash flow. Always ensure the business can meet its repayment terms.

Related Terms

Secured Debt, Creditworthiness, Debt Financing, Personal Loans