Unsecured Debt Definition

An unsecured debt is a debt that has no collateral. For example, let’s say you lend your sister-in-law $100; she takes the cash and says she’ll pay you back. That’s an unsecured loan, and you can be pretty sure you’ve seen the last of your hundred bucks.

On the other hand, let’s say you lend your sister-in-law $100; she takes the cash and hands you her favorite cashmere sweater and says you can keep it until she pays you back. That’s a secured loan, and you can be pretty sure she’ll pay you back pretty soon. Unsecured debt is risky for the lender, and hence usually carries a higher interest rate than secured debt.