Secured Debts vs Unsecured Debts

Know the difference between secured and unsecured debts so that you can figure out how to best deal with them. Knowing this is a major factor when seeking a solution to credit issues.

Banks and finance companies try to maximize their profits while minimizing their risk particularly on large loan amounts. One way to minimize risk is to tie collateral to a loan. This collateral can be taken by the lender and sold to recover money owed in the event the loan is not paid as agreed. Common types of collateral are:

Real Estate
Cars
Boats
Vehicles
Investments
Depending on the provincial law seizing the asset will end the contract or can be sold to offset a portion of the loan outstanding and may still be followed by court action. Before court action can be taken the lender generally needs to repossess the collateral in an attempt to remedy any outstanding monies owed.

Know the law before voluntarily relinquishing an asset as there could be further credit and legal repercussions.

Smaller debts like most credit cards, lines of credit and overdrafts are usually unsecured. There is no asset tied to the debt. If the loan goes unpaid a borrower can expect collection calls and the possibility of a lawsuit and a judgement against them.

If unsure how to proceed seek advice from a non-profit Credit Counselling Society.

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